This week, Craig Siminski, of CMS Retirement Income Planning, shares with us an article discussing how a tax credit and/or dependent-care flexible spending account might help offset some of the costs paid for a nanny, babysitter, day care, preschool, or day camp:
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 Care.com reported spending 20% or more of their household income on child care in 2021, while 72% of families spent at least 10%.
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.
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…
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 25 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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