Child Care Costs vs. Income
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The decision to work or stay at home with the kids has become increasingly complex for families due to the realities of today's economy. In some cases, the cost of child care not only outweighs the income provided by a second job, but it's also a household's largest single expense. It can cost the average family more than college tuition or even housing. Here's a look at the current state of child care costs and how to manage them.
The Costs of Child Care
A 2015 study reports that the average family pays $18,000 annually for child care in the U.S. Depending on the level of care and using two children as an example, 2015 weekly daycare costs look like this:
- Nannies — $488 per week
- Au pair — $360 per week
- Daycare centers — $341 per week
- Family daycare — $267 per week
- After-school sitters — $197 per week
Budget Guidelines for Daycare
The U.S. Department of Health and Human Services advises that daycare should amount to no more than 10 percent of a household's budget. By that calculation, a family would need to earn more than $175,000 annually to afford two children in a daycare center at 2015 average costs.
Comparing child care to rent costs reveals a widening gap, such as in Binghamton, NY, where full-time daycare can cost three times as much as what a family pays in rent. Many advisers use 35 percent of income as the budget target for housing costs.
The Impact of High Child Care Costs
Stay-at-home parenting can be an economically sound strategy when a second job doesn't bring in much extra income, but it does have its downsides. A woman can expect to lose about 10 percent of her earning potential for each year she's out of the job market.
Couples report tightening their budgets and going into debt to cover child care costs, and day care arrangements at work cause many employees to change jobs due to daycare decisions.
Strategies for Coping with Daycare Costs
Even if you’re not one of the 28 percent of families that pay more than $20,000 on childcare annually, there are ways to plan, save and budget for the childcare years.
- If your workplace administers a Flexible Spending Account (FSA) program, you can invest up to $5,000 per family annually. Also called a "dependent account," it could result in tax savings of $2,000 and could cover over one-third of the annual daycare costs for two children.
- There is also tax relief available through Form 2441, the Child and Dependent Care tax credit. You can itemize childcare costs up to $3,000 per child — creating up to a maximum of $1,200 in tax savings.
- State daycare assistance varies, with different levels of care and payment arrangements. Nevada for instance, counts family members as qualifying daycare and may subsidize payment.
- Some employers provide additional childcare assistance. Check with your employer to see if you qualify for benefits or assistance.