Paying for Child Care

The Age of Your Child

The younger your child, the more regular, minute-to-minute attention he or she needs from a caring adult. This is why licensing regulations require lower ratios of adults to children for infant care than for the care of four-year-olds. In New York State child care centers, each caregiver can look after up to seven four-year-olds but no more than four infants. Most of your child care fee goes to pay the salary of your caregiver. This means that only four families are paying the salary of the infant caregiver, while seven share the cost of the person looking after the four-year-olds. Infant care, then, costs almost twice that for preschoolers.

The Type of Care You Choose

If you need child care for one or two children, a nanny will cost the most, followed by an au pair arrangement, center care, and family child care. If there are three or more children in care, the center will be nearly as costly as the nanny or au pair, although it has some other advantages. Family child care is a particularly good buy if your child is an infant or a toddler. A family child care provider will usually charge 25 to 33 percent less to look after your infant than you would pay at a child care center (if you can find one that accepts infants). Family child care is cheaper because the provider is paying herself less than she would make working in a center, and the costs of maintaining and running her home are lower than those in a center. In general, for-profit centers are more expensive than centers that are run on a nonprofit basis. This is not because forprofit centers pay their caregivers better. The most recent national comparison found that only 62 percent of the forprofit center budget went for wages, whereas that figure was 79 percent for nonprofit programs. The big cost for the profitmaking programs is the building and grounds, which use up about 20 percent of the budget. Because many nonprofit centers have space donated to them at little or no cost by schools, churches, and other nonprofit organizations, this expense consumes a relatively small part of their overall budgets.

Where You Live

In general, everything costs more in the city than in rural areas. This means that centers must pay higher salaries and rents, family child care providers must charge more to cover higher costs, and your nanny will be more expensive (especially if she doesn’t live with you and must pay rent). Cities, however, are also likely to provide more subsidized child care for families with lower incomes. If you are eligible for a subsidy and are able to obtain one (there are usually waiting lists), it may reduce your child care costs considerably.

The Cost of Quality

Does a higher fee always mean better quality child care? Not necessarily. The programs that charge the very lowest fees may also provide care of the lowest quality. But a moderately priced program may actually do a better job than the top-of-the-line model of caring for your child, depending on how the money is spent. That is why you must take time to compare programs carefully. The quality of the caregivers working directly with your child should be your primary concern.

If you are choosing among centers, look beyond the fee and learn how many children each caregiver is responsible for and how much education and training the caregivers have. If the choice is between better paid and more qualified caregivers in a modest physical environment and less well paid and qualified caregivers in a beautiful setting, go for the more qualified caregivers. Spend your money on good people. Ten years from now your child will not remember much about the building the program was housed in but may recall with great fondness a special adult and friends made during those early years.

Better quality family child care costs a good bit more than low quality family child care, usually because these providers meet the legal regulations required by the state in which they operate. But high quality family child care homes are still a good buy compared with centers, especially if your child is an infant or a toddler. Of course, you are buying a different product, with less access to same-aged children, often less emphasis on cognitive development, and usually less backup in case the provider is ill. If your family child care provider is interested in more education in child development or child care training, offer to cover the cost of enrollment and increase your payment 5 to 10 percent when she has completed these studies (say from $90 per week to $95 per week). (Even if you can’t afford to pay for her course, promise of a fee increase might prompt her to take the course anyway.) The added value in improved care and a stronger partnership will more than make up for the increased expense (assuming you can find the money somewhere else in your budget).

Child Care as a Percentage of Your Family Income

You should be able to buy good child care for 9 to 10 percent of your before-tax family income. Unfortunately, this is possible only if your income is above about $50,000 a year. For instance, let’s assume that you are paying $400 per month for a preschool space in a child care center, which is usually enough for care of good quality. This amounts to $4,800 per year. In the table below you can see that amount as a percentage of four different annual family incomes.

You can see that your family income has to be close to $50,000 before a $4,800 yearly child care payment takes less than 10 percent of your income. And this is with only one child in care! You can get some of that money back through a federal tax subsidy available to all families.

If your income is in the $15,000 range, you can’t possibly afford to pay $4,800 a year for child care. Fortunately, you can apply for a subsidy to cover all or some of these expenses. Don’t hesitate to use a subsidy if your income makes you eligible.

If your family income is in the $25,000 to $35,000 range, or if you need care for more than one child and have income below $50,000, good quality center care may cost more than you feel you can afford to pay. Don’t assume that this is true. Check it out—you can find out about fees by making a couple of phone calls. Maybe there are centers in your area with sliding fee scales so that wealthier families pay more than the cost of care and families with lower incomes can enroll their children for less than the full cost. Also give real consideration to a family child care provider, especially if your child is less than three years old. By using 15 percent of a $25,000 income, you would have $3,750 to spend on child care, or a bit over $70 a week. This is close to the average cost of family child care nationally and about $8 a week less than the average cost of family child care for infants and toddlers. Quality is the key to whether you are spending your money wisely, so check out each provider carefully.

Ways to Reduce Your Expense

Most modern industrialized societies have public policies that help families with the cost of child care. These policies recognize that parents are much better workers if they can afford to place their children in child care arrangements of good quality. Studies in the United States have shown that parents with good child care arrangements are absent from work less often and are more productive while on the job than those whose child care is inadequate.

In this country we have two kinds of financial subsidies designed to reduce the overall cost of child care. Although in most cases they are not very generous compared with the support many European countries provide to their parents, they are better than nothing. Take advantage of these chances to save money! You deserve them, and they are part of your right as hardworking American parents.

Tax-Based Subsidies

The federal Child and Dependent Care Tax Credit allows you to subtract up to 30 percent of the first $2,400 you pay for child care from your federal income tax. If you have child care costs for two or more children, your savings can be up to 30 percent of the first $4,800 you pay for care. The percentage of those costs that you can actually deduct depends on your income—the lower your income, the more you can deduct. The table below shows how much you can deduct at five different income ranges. This example is based on a married couple filing jointly with both parents employed and one child in child care.

As you can see, the tax savings is never more than $720 with one child in care. The upper limit is $1,440 for two or more children. If you owe less than those amounts in federal tax, your savings will be lower because the government won’t pay you the difference in cash. Unfortunately, that is likely to be true in the $10,000 example shown above because standard deductions for that family would add up to over $9,000, leaving less than $1,000 to be taxed and a tax of less than $150. But suppose you will be paying $4,800 in child care for one child. If you can deduct the full $720, you can recover 15 percent of that total expense, or about $60 a month. Every little bit helps!

For more detailed information about the Child and Dependent Care Tax Credit, call the local office of the Internal Revenue Service. Have them send you Form 2441 and any accompanying instructions. During tax season these forms are often available at your local post office. If you have your tax statements prepared professionally, that person will be able to tell you what the deduction will be at your income level.

At least twenty-two states and the District of Columbia also offer child care tax credit programs. Check with your local child care information and referral agency or any professional tax preparer to see whether your state provides this benefit. If it does, you can deduct this percentage from your state tax in addition to what you deducted on your federal tax return.

The federal government will also allow your employer to make it possible for you to pay up to $5,000 of your child care costs in pretax dollars. The Dependent Care Assistance Plan lets you set up to $5,000 of your income aside to pay for child care. You will not have to pay tax on that income, which will result in a saving. This plan is not in addition to that provided by the child care tax credit; it is an alternative to the credit.

Public Child Care Subsidies

The government pays subsidies to make child care more affordable for lower income families. The money comes from a mix of federal, state, and local tax revenues and can be used by parents who are already in the workforce. One such program, the federal Child Development Block Grant, can cover some or most of your child care costs if your family income is less than about $30,000 a year (for a family of four). Federal Title XX Day Care Services funds are also available for this purpose. Many states also make state funds available to support part of the cost of child care for low income families.

If you have been receiving public assistance and are just now entering the workforce, there are several subsidy programs designed specifically to help you. The Transitional Child Care Program, a mix of federal and state funds, will cover your child care costs for up to a year after you enter the labor market from public assistance. Many states have additional child care subsidy programs that will pay for some or all of your child care costs while you are making the transition from public assistance to employment. Recent federal and state efforts at welfare reform are likely to increase the availability of these funds.

To learn more about whether you can take advantage of these public child care subsidy programs, contact your local child care resource and referral agency. These programs are not handouts! They help make up for the fact that lower income families cannot benefit from the federal and state child and dependent care tax credits used by middle and upper income families. So if you are eligible for one of these subsidies, apply for it. Often the programs have waiting lists so look into the possibilities just as soon as you can.

Emergency Scholarship Funds

Sometimes you can obtain a scholarship to help out during a crisis or an emergency. Some centers have scholarship funds, and in other cases the money is available at the community level through your local resource and referral agency. These scholarships are reserved for parents who have financial hardship for reasons beyond their control such as serious illness, fire, separation or divorce, or a housing emergency. Typically the payment is for three months or less. It usually covers the majority of the fee, with the parent making up the difference.

Ways to Spread Out Your Child Care Expenses

Like your home, your car, or your college education, some or all of your child care costs can be paid for with a loan. If you want to spread those expenses over ten years, for instance, instead of absorbing them all as they occur, a loan can be helpful. Your overall cost will be higher, but a higher income later on may make the payments easier to manage. Of course, if you have a relative willing to loan you the money at little or no interest, that may be an excellent option. But pay what you can up front so that your debt burden isn’t too great later on.

In 1997, Mon Cochran joined with Eva Cochran, Coordinator of the Early Childhood Education Degree Program at Tompkins Cortland Community College, to write a parent's guide entitled “Child Care that Works: A Parents' Guide to Finding Child Care,” published by Robins Lane Press. The aim is to provide parents with the information needed to understand quality in child care and find satisfactory child care arrangements.

Under the leadership of Nancy Torp, Senior Extension Educator with Cornell Cooperative Extension, portions of the book have been adapted as fact sheets for Extension educators, parents, and child care providers across New York State.