How to Save Money on Childcare Expenses

We understand that investing in each child’s early education is a significant decision for every family, and it is often a multifaceted decision. Recognizing the importance of quality early childhood education, we’re here to guide you through the various financial strategies that can make preschool education more accessible and affordable. One often overlooked area is the potential to utilize employer benefits and tax advantages for preschool expenses. Let’s explore how you can leverage these options to benefit your family….

saving money on childcare

Understanding Dependent Care Flexible Spending Accounts (FSAs)

A Dependent Care Flexible Spending Account (FSA) is a pre-tax benefit account used to pay for eligible dependent care services, such as preschool, summer day camp, and before or after-school programs. This account allows you to contribute pre-tax dollars, which lowers your taxable income, resulting in tax savings.

How It Works

  • Contribution Limits: For 2023, the IRS allows you to contribute up to $5,000 per year per household, or $2,500 if married and filing separately.
    Eligibility: To qualify, both parents must be working, looking for work, or attending school full-time. The child must be under 13 years of age.
    Usage: Funds must be used for eligible expenses to care for qualifying dependents, enabling you (and your spouse, if applicable) to work or look for work.

Tax Credits for Childcare Expenses

Another avenue for savings is through tax credits specifically designed for childcare expenses, including preschool tuition.
With Tax Day around the corner, consider asking your accountant about the Child and Dependent Care Tax Credit… This tax credit allows you to deduct a percentage of your childcare expenses from your federal income tax. Unlike deductions, credits reduce your tax bill dollar-for-dollar, making them particularly valuable!

How It Works

  • Eligibility: Your child must be under 13, and the care must enable you (and your spouse, if applicable) to work or actively look for work.
    Expense Limits: You can claim up to $3,000 for one qualifying individual or $6,000 for two or more qualifying individuals.
    Credit Amount: The credit rate ranges from 20% to 35% of your allowable expenses, depending on your adjusted gross income (AGI).

Employer-Sponsored Childcare Benefits

Some employers offer childcare benefits that go beyond FSAs, such as direct subsidies for childcare or discounts with partnered centers. These benefits are part of an employer’s benefits package and can provide substantial savings.

How to Access These Benefits

  • Check Your Benefits Package: Review your employer’s benefits handbook or talk to your HR department to understand what’s available.
    Enroll in a Dependent Care FSA: If your employer offers this, sign up during the open enrollment period or when you experience a qualifying life event.
    Claim Tax Credits: When filing your taxes, be sure you claim the Child and Dependent Care Tax Credit if you qualify. Consult with a tax professional to make sure you’re maximizing your benefits.

While this is a big discussion and we just mentioned multiple options, we hope you are able to go forward making the most of these opportunities! Here are our last few tips:

  • Estimate your annual childcare expenses as accurately as possible.
    Keep thorough records of your childcare expenses throughout the year using the “billing” tab on the KangarooTime website!
  • Keep an eye out and stay informed about any changes to tax laws or employer benefits that could affect your planning.

We’re committed to providing not just exceptional early education for your child, but also to supporting our families in every way possible! Of course, that includes helping you navigate the financial aspects of preschool education. Be sure to keep checking our blog during this series to stay informed, learn some tips and tricks, and explore the financial questions in the world of preschools!

 

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