Child Care Is a Budget Buster: Take Advantage of These Tax Breaks

The U.S. Department of Health and Human Services considers child-care costs to be affordable when they are at or below 7% of annual household income — but many families face costs that are far above that threshold. In fact, about half of families surveyed by reported spending 20% or more of their household income on child care in 2021, while 72% of families spent at least 10%.1

The typical fees charged for child care vary widely by state, as do other living costs. But in all regions, the average annual cost of center-based care for two children exceeds the average amount of money families spend on food and transportation combined, and in most areas of the country, it is more expensive than housing.2

The following tax benefits can help parents offset some of the costs paid for a nanny, babysitter, day care, preschool, or day camp, but only if the services are used so the parents can work.

Child-Care Tax Credit

Families with one qualifying child (typically age 12 or younger) can claim up to $3,000 per year in child-care expenses; those with two or more qualifying children have a $6,000 annual limit.

The nonrefundable credit is worth 20% to 35% of eligible child-care expenses, depending on income. As income rises, the credit amount drops until it hits a minimum of 20% for households with $43,000 or more in adjusted gross income. For example, families with one qualifying child can receive a credit of $600 to $1,050; those with two or more children can receive a credit of $1,200 to $2,100. A tax credit lowers a family’s tax liability dollar for dollar.

Dependent-Care Flexible Spending Account

Higher-income families may realize a bigger tax benefit from a dependent-care flexible spending account (FSA) if one is offered by an employer, because up to $5,000 a year (per family) can be set aside on a pre-tax basis through regular payroll deductions. FSA distributions are free of federal income tax if the money in the account is used for eligible child-care costs for qualifying children. (Dependent-care FSA funds can also be used to cover care for children over age 13 with special needs and elderly parents or relatives that are claimed as dependents.)

Child-Care Affordability Is All Over the Map

The annual price of center-based care as a percentage of median income, by state

Annual price of center-based care as a percentage of median income, by state: Alabama, Alaska, Arkansas, Georgia, Idaho, Kentucky, Louisiana, Mississippi, North Dakota, Ohio, and South Dakota pay less than 11%. Connecticut, Delaware, the District of Columbia, Florida, Iowa, Indiana, Maine, Missouri, Montana, New Hampshire, New Jersey, North Carolina, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia, Wisconsin, and Wyoming pay 11% to 13%. Arizona, California, Colorado, Hawaii, Illinois, Kansas, Maryland, Massachusetts, Michigan, Minnesota, Nebraska, Nevada, New Mexico, New York, Oklahoma, Oregon, Vermont, and Washington pay over 13%.

Source: Child Care Aware® of America, 2022 (data for 2021; CO data for 2020)

Employees with access to an FSA as a workplace benefit generally have an opportunity to enroll in an account and elect contribution amounts during their annual open enrollment period. FSA funds that are not spent by the end of the calendar year could be lost, so it’s important to consider carefully — and at times reconsider — how much to put into the account. FSA owners are typically permitted to adjust their contributions when they experience certain events, such as a change in marital or employment status, a change in the number or eligibility of dependents, or a change in care provider or the rates charged for care.

Taxpayers are not allowed to use pre-tax money from an FSA and take a credit for the same expenses. However, after spending $5,000 from an FSA, families with more than one qualifying dependent could take a tax credit for up to $1,000 in additional care expenses.

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Matthew Englade

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Matthew Englade

Matt graduated in 2008 from Southeastern Louisiana with a bachelor's degree in business. He started his career in financial services, working as a staff member with Delahaye and Associates, where he eventually became a partner.

In 2022 he formed Englade Insurance and Financial Services, where his primary focus is serving his client’s best interest. “But even if you should suffer for what is right, you are blessed.” 1 Peter 3:14

Matt is a resident of Central, LA and enjoys spending time with his wife, Angela, and three children. He also enjoys coaching middle school basketball and giving back to his local church.

Jacob Ashford

Jacob is currently a student at Southeastern Louisiana University and is studying in the College of Business as a Marketing Major.

Jacob pursues his career by working with Matt and Angela in their mission to spread financial sustainability with their current and future clients. He also donates his time to the Southeastern's College of Business by participating in numerous career services for the city of Hammond.

Having two younger sisters, Jacob understands the importance of protecting family values and leading a path to a secure future.

Nathan graduated from Texas A&M University Class of 2006 with a degree in Agriculture Leadership & Development. Nathan has been in public service as a firefighter since 2008. In addition he and Katherine have started, operated, purchased, and sold multiple small business’. Through his experiences; Financial Services has been a lifelong pursuit for Nathan and he is excited to be a resource for people like you, your family, and your business.

Angela Englade

Angela graduated from Southeastern Louisiana University with a Bachelor of Science degree in Nursing. She worked as a Labor and Delivery nurse for 14 years. She decided to continue her love for caring for others through helping people obtain financial health and wellness.

She joined Englade Insurance and Financial Services to guide Matt's clients on becoming aware of potential roadblocks and achieve financial peace of mind. In her free time, she enjoys spending time with her family and exercising.

Along with Matthew, she volunteers many hours to local charities to give back to the community.

Eve is happily married to her best friend Rick since 2012. They enjoy recreational trips like hiking and camping, visiting the beaches in the Gulf of Mexico, and trips to Walt Disney World. They are active in their congregation, donating their time and effort to help run the Audio/Visual presentations for services. She is grateful for all God has given her and believes all the glory goes to Him.

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Matt is a board member of CALEF and is involved committed to its long-term success. The mission of CALEF is to provide police, fire and EMS personnel with the safety equipment they need to serve and protect with excellence. We provide all-day rifle protection and other safety equipment to local law enforcement, fire and EMS personnel. CALEF believes that communities are safer and stronger when local law enforcement, fire and EMS personnel are properly equipped to do their job.

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Matt and Angela are active members of the church and school communities of St. Alphonsus Liguori Catholic Parish. Their mission is to form students in the Catholic Faith spiritually, academically, physically, and culturally in an environment of academic excellence. St. Alphonsus Liguori Catholic School is committed to providing a positive, faith-filled environment for children to learn. Our comprehensive curriculum is designed to promote academic excellence and the spiritual growth of our students, coupled with an appreciation of how service to others makes the world a better place. We strive to expand their potential to become leaders.

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