What to Do if Your Daycare Bill is Larger Than Your Mortgage Bill

by Emily Guy Birken · 6 comments

I grew up in the 80s, and I can count on one hand the number of mothers I knew who stayed home with their kids, even part time. Now that I’m a mother myself, it seems as though the majority of the families I know have at least one parent who stays home at least part time.

The difference? According to a Pew Research Center report, the reason for the increase in stay-at-home parents is the rising cost of childcare. Weekly costs for daycare and other types of childcare have risen 70% since 1986, the first year these numbers were tracked.

Anecdotally, I know of zero parents who have a daycare bill that’s lower than their mortgage bill. Crazy right?! It’s an incredibly frustrating Catch-22, especially for working mothers, since taking time away from a career can hurt your lifelong income, but continuing to work can cost more than you bring in.

So how can you mitigate these overwhelming costs without completely restructuring your life? Here are four options for minimizing your childcare bill without having to change jobs or schedules.

Use a Dependent Care Flexible Spending Account

If your employer offers a Flexible Spending Account (FSA) program, you can have up to $5,000 deducted from your paycheck pre-taxed, and placed in your FSA to use for dependent care costs. If you fall within the 35% tax bracket and max out your FSA, you’ll be able to save $1,750 on your taxes each year. This can offset the average cost of about seven weeks of a center-based daycare, which is $972 per month.

There are some caveats to using a dependent care FSA, however. First, all FSAs are set up to be use-it-or-lose-it. If you’re not able to use the full amount you have deducted from your paycheck, you forfeit the unused funds.

In order to use FSA funds, you must also pay your childcare expenses out-of-pocket and be reimbursed, which can potentially place an additional financial burden on your family. The reimbursement process can be somewhat onerous, as well, as there is no automated process for submitting a claim.

To make the most of your dependent care FSA, it’s a good idea to schedule time each month to put file your reimbursement claim so you aren’t scrambling to find receipts at the end of the year.

Leverage the Child and Dependent Care Tax Credit

This tax break for childcare expenses is a credit, rather than a deduction, meaning you will see a dollar-for-dollar reduction in the amount of tax you owe. For example, if you’re eligible for a $1,000 tax credit, your tax bill will be cut by $1,000.

To receive this tax credit, you must use childcare for a dependent under the age of 13 specifically when you worked or looked for work. You can claim up to $3,000 for the credit for one child, or $6,000 for one or more children.

Here’s how the credit works: Add up your childcare expenses (minus any money you have set aside in your FSA), and compare it with your earned income and your spouse’s earned income. The smallest amount of the three is considered your allowable expenses. The credit is a percentage of your allowable expenses, ranging from 20% to 35%, depending on your income.

For instance, if your allowable expenses come to $9,000, and your income puts you at the 20% bracket, then you can claim a $1,800 credit ($9,000 x 20% = $1,800).

As with the FSA, the big issue with the Child and Dependent Care Credit is the complexity of filing. It’s important to keep careful track of your childcare expenses throughout the year so you can receive your full credit come tax time.

Check Out State Subsidies

Most states offers subsidies for families earning less than 200% of the Federal Poverty Level, which is currently set at $47,700 for a family of four. So if you and your family make less than this amount, you could qualify for help from the state.

To determine if you do qualify for a local subsidy, contact your local Child Care Resource & Referral agency directly, through ChildCareAware.org.

Apply for Scholarships

Unfortunately, there are many families who earn too much money to qualify for a state subsidy, but these earnings are not enough to cover childcare on their own. In those situations, it’s a good idea to consider daycare scholarships.

Private companies, religious organizations, and daycare agencies all offer differing scholarship options, from price breaks or sliding scales based upon income, to multi-year scholarships for early education programs. Your state’s social services department and local early childhood foundations can help you to discover what sorts of scholarships and financial aid is available for your child.

The Bottom Line

Mitigating the high cost of childcare can require both organization and legwork on your part to take advantage of all of the breaks available to you. That extra work will pay off when your paycheck is not being spent entirely on your daycare bill.

Do you pay daycare expenses for your child? What’s another way to reduce the cost of this large bill?

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  • Christine says:

    Actually the math on the tax credit is incorrect. The qualifying expenses used to figure the credit is $3000 for one child or $6000 for more than one, so if you have $9000 worth of expenses for one child the tax credit can only be figured on $3000 of that $9000. You do not get a maximum of $3000 back in credits, you only get to figure the credit on $3000 worth of qualified expenses. So if you were in the 20% bracket with credit would be $600 not $1800. Source: https://www.irs.gov/publications/p503/ar02.html#en_US_2015_publink1000203335

  • Emma says:

    Very good advices, thank you for this information. Yes, in our life not all so easy as we want to. And daycare usually is expensive service in USA.

  • Angey says:

    I’m a mom of 2 and my son has 2 diseases (Type 1 diabetes and Celiac) and this has made me find ways to stay home. My amazing husband works a full time job and I have started my own business from home last year. I love being an entrepreneur and making my own schedule, and not having to leave home! I started building it in the pockets of my life when I was working a part-time job, and within 5 months was able to resign from my job and come home permanently. I now help others improve their quality of life proper nutrition, education on nutritional cleansing, special dietary needs and athlete performance and best of all, showing others (especially parents) ways that they can come home and raise their own children, while providing for their family. There are options out there and parents need to know that there is a better way!

  • David says:

    You don’t have to worry about the money there are good companies out there that will help you and that will understand if you are having trouble with your salary. I was in same position but Mortgage Lender Greenville SC really helped me and were very patient with me. You can learn about them in here http://gofirstnations.com/

  • lana says:

    Day care costs were the main reason I became a stay at home mom. Worked for us. Money was tight, but we found ways to make it work.

  • Daycare bills have gone insane. Most people I know spend a mortgage payment or two on them as well.

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