Getting a Handle on Child Care Costs

I don't have to tell you that child care is probably the biggest expense you have right now if your kids aren't already in school.

Costs vary widely around the country. According to the Children's Defense Fund, you'd pay around $4,210 per year for full-time child care for a three-year-old in Dallas. In Minneapolis, that might be as high as $6,030. In Boston, it could top $8,800.

Of course, costs are higher the younger your child is and whether or not you choose to have in-home care. If you have several kids, it may be more cost effective, but overall it typically will be more expensive.

The Numbers

A professional nanny might charge anywhere from $1,500 to $4,500 a month, figuring 20 working days a month, plus room and board if they live in with you. Paying someone $20,000 a year is not uncommon, depending on the part of the country you live, number of hours you work and the age of your child.

An au pair could lighten your wallet by up to $125 a week, plus $500 a year toward their tuition costs and another $4,000 or so to even participate in the program that pays for their airfare and so forth.

Out of home care at a day care center might run around $5 an hour for a preschooler. But since price varies, ask other parents in your neighborhood, or workplace what they are paying and shop around.

Tax Breaks

There's a bright spot in the recent tax changes. Namely, the Child Tax Credit. It's a $1000 tax credit, for each dependent child under age 17.

It's available for taxpayers with an adjusted gross income of $75,000 or less who file a single return. The credit is reduced by $50 for each $1,000 or fraction above those amounts. Now that's something you can take to the bank.

Besides that new tax break, there are other deductions available for working parents that you should investigate that can help ease the burden of child-care costs.

For instance, you might be eligible for the Child-Care Credit. If you pay someone while you work, it's possible. You must have earned income from your work during the year and must have maintained a home for yourself and your child. The credit may be as much as $1,050 if you have one qualifying individual or $2,100 if you have more than one. For details, you'll want to call 800-TAXFORM and ask for Child and Dependent Care, Publication 503. Or go to the Website of the Internal Revenue Service at www.irs.gov and download the form.

You'll have to prove that you are paying the required Social Security and Medicare employment taxes for your caretaker and name them on your return. That information can be found in Publication 926, Employment Taxes for Household Employers. If you are divorced, though, only one of you can claim this credit.

You should also check with your human resources department at work to see if your company offers a flexible spending account to pay for child care. These accounts let you set aside a certain amount pretax for child-care expenses, generally up to $5,000. You can't use it, though, if you claim the child-care credit on your tax return. But depending on your income level, this can be more of a break.

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