The Child Care GuideOne of the biggest expenses you will face as a new dad is child care. It is important however to also keep in mind that this decision has more to do with than just dollars and cents. Over the next couple of pages I’ll walk you through the options you have in front of you to choose from. I’ll talk about the pros and cons of each as well as the cost. While we’re on the topic of cost, here is a tip for you to help save some money. Did you know that you can save on your taxes when you spend money on daycare? It’s true. There are two options for this. Anyone who pays for dependent care (they do have to be your legal dependents after all) can claim a tax credit on their return for varying amounts depending on your income level. More information can be found on the IRS website. Another option is to make use of an employer sponsored dependent care flexible spending account. Just like a medical flexible spending account, you put in dollars pre-tax and then can use those dollars throughout the year to pay for child care. As a general rule of thumb, if the flexible account is an option you are better off going that route. You will avoid not only income taxes, but also Social Security and Medicare taxes. Being that I’m not a CPA, you should contact your accountant for more information. There are risks with the flexible account. If you don’t plan well and end up not spending as much as you put aside you lose it. I have used the flexible spending account offered by my employer and always err on the side of not putting in enough – I’d hate to think that I wasted money, I’d rather just pay taxes on a little bit than lose money at all. Like anything tax related there are rules that go along with both options. Specifically both you and your wife have to be working – this means you can’t just pay your wife to watch the baby – nice try. There are several other rules about how you can qualify – again check with your employer for the flexible spending account or at the IRS’s website for the credit. Ok there is your money saving tip for the day. Onto your child care options. Read through these pages and when you’re done I guarantee you’ll be able to make a more informed decision. |
