Despite a down economy, costs continue to rise for healthcare, education and childcare in the U.S. In regards to childcare, there are a number of ways to combat rising costs. Below are five ways to help you save.

Tax Credits
IRS Publication 503 highlights some of the tax benefits available for families and parents that use outside childcare. There are the standard dependent tax deductions on basic tax forms, but there are also ways to exclude care benefits received from your employer. Some things that can be excluded are amounts paid to the employer for childcare, the fair market value of care provided in a daycare facility sponsored by your employer or any pre-tax contributions made with a dependent care flexible spending arrangement.

Flexible Spending Accounts
Dependent care flexible spending accounts (FSA) let parents set aside as much as $5,000 in pre-tax money to pay for childcare. In similar fashion to a standard FSA, they are deducted from weekly or semi-weekly paychecks prior to the deduction of federal, state and Social Security taxes. For an individual in a 28% tax bracket, this can mean savings of $1,400 annually or close to 30% of the original $5,000 amount that would have otherwise gone to paying Uncle Sam.

SEE: Top Job Perks You May Not Have Heard Of

Compare Help Options
There are two primary options for the daily care of your child. The first is to simply have one spouse stay at home. The second is to have a nanny come into the house to provide care. This is one of the more convenient options, but according to the IRS this may qualify your home as a household employer, which would require the payment of Social Security, unemployment and tax withholdings. This "nanny tax" may or may not be worth it. Some outside services, such as those that provide nannies, can provide some relief or guidance on how to most economically have someone come into your home and care for your children.

Stay at Home
Sometimes, the best option for the well-being of your child and checkbook may be for one spouse to not work and stay at home. The cost per child of hiring a nanny or outside daycare facility averages around $12,000 annually. If you have more than a couple of children and have a household income less than $40,000 per year, it is more economical to stay at home and raise the kids. However, if you volunteer to take care of other children, you may be eligible for additional tax deductions.

SEE: Staying Home Vs. Daycare: A Financial Conundrum

The Bottom Line
Tax credits and other saving methods can literally save you thousands of dollars in annual childcare expenses. It can be the difference between needing to stay at home or heading to the office to try and get ahead by earning some extra annual income.

Related Articles
  1. Personal Finance

    How Tech Can Help with 3 Behavioral Finance Biases

    Even if you’re a finance or statistics expert, you’re not immune to common decision-making mistakes that can negatively impact your finances.
  2. Savings

    Should You Look at 529 Plans Outside Your State?

    529 savings plans are not restricted by geography. So if your in-state offering has high fees or poor investment choices, look elsewhere.
  3. Insurance

    What's The Difference Between Medicare And Medicaid?

    One program is for the poor; the other is for the elderly. Learn which is which.
  4. Taxes

    The Purpose Of The W-9 Form

    The W-9 form provides key data your clients need if you're an independent contractor. Just be sure you're not really an employee who should fill out a W-4.
  5. Stock Analysis

    The Biggest Risks of Investing in Sears Stock

    Learn about the factors that have led to Sears Holdings' underperformance the past several years and where the ailing retailer could be heading in the future.
  6. Stock Analysis

    4 Key Indicators That Move The Markets

    Educated investors need to keep their finger on the pulse of the economy, and watching certain indicators is a good way to do that.
  7. Savings

    Craft Beer Clubs – Bargain or Not?

    If you're an aficionado of artisanal brews (or would like to be), a beer club can be a palate-pleasing, albeit pricey, way to expand your hops horizon.
  8. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  9. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  10. Savings

    These 10 Habits Will Help You Reach Financial Freedom

    Learn 10 key habits for achieving financial freedom, including smart budgeting, staying abreast of new tax deductions and the importance of proper maintenance.
  1. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  2. Are Flexible Spending Account (FSA) contributions tax deductible?

    The contributions you make to your Flexible Spending Account (FSA) are not tax-deductible because the accounts are funded ... Read Full Answer >>
  3. Does a Flexible Spending Account (FSA) cover Lasik?

    Flexible spending accounts (FSA) can be used to pay for qualifying LASIK procedures. LASIK is not the only laser eye surgery ... Read Full Answer >>
  4. Are Flexible Spending Account (FSA) expenses tax deductible?

    Flexible Spending Account (FSA) expenses are not tax deductible. The U.S. Internal Revenue Service (IRS) states you cannot ... Read Full Answer >>
  5. Does a Flexible Spending Account (FSA) cover acupuncture?

    A Flexible Spending Account (FSA) covers acupuncture. The Internal Revenue Service (IRS) has defined acupuncture as a qualifying ... Read Full Answer >>
  6. Do Flexible Spending Accounts (FSAs) expire?

    Flexible Spending Accounts (FSAs) do expire and are considered to be a "use it or lose it" type of plan. They are savings ... Read Full Answer >>

You May Also Like

Trading Center