For the same average cost of child care in the United States, you could buy a house. American parents are spending five digits a year on tuition for preschoolers, and that’s just for one kid. Parents of multiples are having to rethink their child care budget and lifestyle just to go to work.
You may be able to have a big portion of your child care costs paid for if you have a low income. Or if you have moderate earnings, you may be able to reduce your tax liability. Some parents are using unconventional approaches to child care that save money while also giving their kids more personal attention.
How Expensive Child Care is in the U.S.
Licensed center-based care is a popular option for parents who want predictable hours, peer socialization, or curriculum-based learning. However, the national average cost for full-time tuition at these facilities is between:
- $10,500 and $26,000 annually for an infant.
- $9,200 and $22,500 annually for a toddler.
- $8,000 and $19,500 annually for a preschooler.
- $5,500 and $14,000 annually for a school-age child.
Most U.S. families spend between 9% and 16% of their household income on child care. By comparison, parents in other countries may spend between 0% and 15% of their income, thanks to government subsidies.
In Germany, for instance, the average cost is 1% to 3% of the parents’ disposable income. Canadians are aiming to reduce daily child care rates to only $10. Parents of 3- and 4-year-olds in the U.K. are guaranteed 15 hours a week of funded child care for 38 weeks a year, and some low earners may receive 30 hours a week.
Government Subsidies for Child Care
The Child Care and Development Fund (CCDF) is a federal grant given to state governments to issue subsidies or vouchers for eligible applicants. Generally, these subsidies are for low-income parents who need child care to work, go to school, or receive training.
Although each state has freedom to administer the program as it sees fit, there are some national requirements including:
- That all subsidized providers must meet federal health, safety, and training requirements. Caregivers must all have an FBI fingerprint check and sex-offender registry check.
- That states must cap copayments so they are not unreasonably high, but the provider payments must be high enough that recipients can access the same care as other local families.
- Spending a portion of the funding on improving child care quality, annually checking the market rate, and publishing their plans every three years for transparency.
Head Start and Early Head Start are federally funded programs that provide free child care for low-income parents. In most cases, families are eligible if:
- Their earnings are less than the Federal Poverty Level.
- They are experiencing homelessness.
- They are receiving other financial assistance, such as SSI or TANF.
- The children are in foster care.
These programs also typically provide free meals and snacks, on-site health screenings, and developmental assessments. Some sites supply diapers and formula.
The Child and Dependent Care Tax Credit
The Child and Dependent Care Tax Credit is a non-refundable tax break, which means it can reduce your tax bill, even to $0, but you won’t get a payment from it. To claim the credit, children must be younger than 13 years old (unless disabled).
Parents can claim expenses up to $3,000 for one kid or $6,000 for multiple kids. However, the credit amount is only for a portion of the expense limit. The IRS gives you only 20% to 35% of it! The percent of eligible expenses you can get a credit for depends on your Adjusted Gross Income (AGI):
- A max of 35% if your AGI is $15,000 or less
- Then, the percentage drops by 1% for every $2,000 of income higher than $15,000
- Until a minimum of 20% if your AGI is more than $43,000
So, a parent with a single child could get a credit between $600 (20% of $3,000) and $1,050 (35% of $3,000). While a parent with multiple children could get a credit between $1,200 (20% of $6,000) and $2,100 (35% of $6,000).
Dependent Care Flexible Spending Accounts
Depending on the employer, employees can elect to have some of their pre-taxed paycheck set aside for child care expenses. Parents can contribute as much $5,000 annually to cover:
- Daycare centers
- Preschool
- Before‑ and after‑school programs
- Summer day camps
- Babysitters (if work‑related)
- Nannies
It’s a tax savings of $1,000 to $2,000 for families who max out annual contributions. This is a more beneficial tax break for higher earners, as the higher the income tax bracket, the more parents save. Plus, parents can use a Dependent Care FSA and claim the Child and Dependent Care Tax Credit if their child care expenses are high enough.
Like the Child and Dependent Care Tax Credit, children must be younger than 13 years old (unless disabled). Plus, the care has to be so the parent can work or look for work. So, parents can’t use funds to hire a sitter for some Saturday night fun.
A Dependent Care FSA is an easy tax savings if you know you’ll spend all of your contributions. Because you forfeit any unused funds by the end of the plan year.
Alternative Ways to Offset Child Care Costs
The average annual income for a day care worker in a U.S. center is between $30,000 to $33,000 (or $14 to $16 an hour). And depending on the children’s ages, that single worker could be responsible for 4 infants, 5 to 7 toddlers, 9 preschoolers, 13 prekindergartners, or even 20 school-age kids.
So, some parents opt for home-based care at a licensed caregiver’s home since the group size is smaller, they have a more familiar relationship with the provider, and the cost is lower. It’s a win-win, as parents pay less and the child care provider earns more. The national average annual cost is:
- $8,500 and $19,500 for an infant.
- $7,500 and $17,000 for a toddler.
- $6,500 and $15,000 for a preschooler.
- $5,000 and $11,000 for a school-age child.
Another option is to set up a group babysitting schedule as a group. For instance, 5 families can arrange a calendar where each household is responsible for watching all the children one day a week. With some collaboration – and building that proverbial village – parents may be able to have completely free care by taking turns.
