For many working parents, their daycare payment is one of their household's largest expenses. Though you don't want to skimp on your child's care, it makes sense to explore options to make this expense more affordable. Here are a few ways you can cut your daycare expenses without sacrificing your child's well being:
1. Utilize a Dependent Care Flexible Spending Account (FSA)
A dependent care FSA is an excellent way to painlessly reduce your daycare expenses every month. Check with your employer to see if it offers a dependent care FSA as an employee benefit.
After signing up, you make contributions to the dependent care FSA with pretax dollars. This means that you do not pay income taxes on the money that you contribute to the account. Once you incur daycare expenses, you submit paperwork to receive reimbursement from your FSA. The exact savings varies based on your tax bracket, but utilizing a dependent care FSA can ultimately save you thousands of dollars each year.
2. Take the Dependent Care Tax Credit on Your Taxes
If your employer doesn't offer a dependent care FSA, you can still save money on your daycare expenses by taking a child tax credit. This tax credit literally reduces how much you in income taxes. For example, if your income tax bill is $4,500 and you are entitled to a child tax credit of $2,000, this reduces your income tax obligation to $2,500.
The amount of the child tax credit that you are entitled to varies based on the amount of your income, how many children you have, and how much you pay in childcare expenses.
To take the dependent care tax credit, you need to make sure your daycare provider reports your payments to the IRS.
3. Opt to Have Your Daycare Payment Deducted from Your Bank Account
Some daycare providers offer customers a financial incentive to have their daycare payments automatically deducted each month from their bank accounts. Because this ensures that the customer makes the payment on time each month, the daycare center may offer a slight discount on your monthly tuition or annual registration fee.
Even if your daycare center doesn't offer a discount for having your payment deducted each month, there are still advantages to utilizing this alternative. Since the payment gets deducted from your account each month, you know that your payment will be on time every single month. This minimizes any late fees that you might incur from accidentally making your daycare payment after the due date.