Childcare still a financial puzzle for two-income families

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Raising children is a full-time job, which is a problem if you both already have day jobs. That’s why they call it day care. Mom can go back to work and — like Dad — come home to a night job.

Here’s the skinny on daycare, or child care, options, costs, tax benefits, and corporate offerings. There’s lots of choice, but you’ll pay dearly for quality.

Making the choice

Finding daycare for an infant is not like choosing a hair salon or a grocery store, says executive director of the Early Care and Education Consortium Eric Karolak. “The search can be overwhelming to new parents.” This is due in part to the wide range of providers from which to choose. There are licensed childcare centers like KinderCare, YMCA and Easter Seals, family childcare in a home or a nanny or babysitter. There are also license-exempt centers run by religious institutions.

What are we looking for? What most of us want is a safe, stimulating environment for our child, and we try to make the best choice given the quality of the program, location, cost and how the staff makes you feel. According to the National Association of Child Care Resource & Referral Agencies, Naccrra, the average cost of full-time childcare in 2009 ranged from more than $4,550 in Mississippi to more than $18,750 in Massachusetts. For a four-year-old, those numbers fell to $4,050 and $13,150, respectively. In 40 states, the average annual cost for center-based care for an infant was higher than a year’s tuition and related fees at a four-year public college, and in every region of the U.S., more than the average annual amount that families spent on food.

Bottom line — childcare is expensive. “Quality isn’t done on the cheap,” says Karolak. The market also has a soft underbelly, he adds. There is a lot of unlicensed, unregulated care out there and it is cheaper because they don’t have as much overhead and can undersell to unsuspecting parents or those who can’t afford the alternative.

Tax breaks and company benefits

The government offsets this slightly with tax relief. One piece comes in the form of the Child Tax Credit, which may be worth $1,000 per child depending upon your income. Married couples who file jointly can earn up to $110,000 and still qualify for this. For those who make more, the credit limit is modified and gradually phased out. However, the largest source of federal childcare assistance, according to an April 2011 report from the National Women’s Law Center, NWLC, is the Federal Child and Dependent Care Tax Credit .

It too is an after-the-fact credit that families with children under 13 are eligible for. Though it can be used for both in- and out-of-home care arrangements, you can only claim up to $3,000 annually for one child and $6,000 for two or more children. It also targets the greatest amount of assistance to lower income families — those who earn over $43,000, can only deduct 20 percent of their eligible expenses as a credit.

According to the Director of Leadership and Public Policy at the NWLC, Helen Blank, middle-income families can also get help at the state level. Twenty eight states have tax credits, some for middle income and others for low-income earners only. These provisions may be credits or deductions, which reduce the amount of state tax owed. The federal Childcare and Development Block Grant also helps low-income families pay for childcare. It is limited to families who earn up to 85 percent of their state median income, but many states have lower eligibility levels than that.

While the government provides some help, only a handful of companies have added childcare benefits.

“The private sector is not picking up this burden,” says Blank. In fact, only 1-2 percent of total expenditures on childcare are private, she adds, citing a 2001 study by Anne Mitchell and Louise Stoney. The study, “Financing Child Care in the United States” found that 60 percent came from parents, 39 percent government and 1 percent private. “This hasn’t changed dramatically,” adds Blank. According to the Society for Human Resource Management, SHRM, 2010 Employee Benefits Survey, only 17 percent offer a child-care referral service, 4 percent provide access to backup child care services, 4 percent offer subsidized child care centers, and 3 percent nonsubsidized centers. Believe it or not, 1 percent allow babies at work, and another 1 percent offer consortium child care centers. On the whole, not necessarily impressive numbers.

That said, corporate trailblazers do exist. Ninety-nine percent of Working Mother’s 100 Best Companies offer child-care resources.

Working Mother cited pace setters like Children’s Healthcare of Atlanta for offering employees backup care for $16 a day for drop-off or $32 a day for in-home care if their primary arrangement fell through; Bank of America for their Child Care Plus program which reimbursed lower paid employees up to $2,880 a year for expenses like babysitters and center fees; WellStar Health Systems for allowing its team to use one of its two on-site childcare centers.

The patchwork solution

No matter what option you choose, in families where both mother and father work, life becomes a patchwork quilt. Care is pieced together from centers, sitters, and family members. Another common situation is tag-team parenting, where one parent comes in from work as the other leaves.

Some businesses offer a Dependent Care Assistance Plan, DCAP, adds Blank. They will let you deduct up to $5,000 from your income (for one or more children), and you don’t have to pay taxes on it. It is just like cafeteria benefits. “If you are in a higher income bracket that may help you more than a tax credit. But your company has to offer it,” she says.

“Some parents work different shifts so that they can take care of their children themselves. That is pretty common,” says Blank. But most of all she adds, “you stretch your income.” The high cost of care means that in some middle class families, it may not make financial sense for one of the partners to return work. If one person’s take home pay goes primarily to care, many couples decide that one person should stay home.

“Sometimes, family members choose not to pursue their dreams because they couldn’t make the childcare equation work,” says Karolak.

No matter what your income level, Karolak adds, “I don’t think anyone escapes the decision of whether to return to workforce and place your child in out of home care. You’ll always be asking yourself: What can I afford? Am I doing the right thing?”

Childcare still a financial puzzle for two-income families was provided by CNBC.com