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Child Care

When you’re planning a family or awaiting the birth of your first child, it’s easy to think about the cost of diapers, nursery furnishings and baby booties. Just don’t make the mistake of not thinking about how much child care will cost you if both of you are going to go back to work after your bundle of joy arrives.

Average Cost

To give you a ballpark idea, the National Association of Child Care Resource and Referral Agencies (NACCRRA) breaks down average annual costs of child care (in 2008) this way:

  Child Care Center Home Care
Infant $14,591 $9,630
4-year Old $10,787 $9,164
School Age $8,600 $6,678

There’s Help

Fortunately, there’s some good news for parents. The federal government helps you out a bit when it comes to child care costs. You can either get a tax credit or use a dependent care reimbursement account (DCRA). To qualify for either, the child care must be needed because you either work outside of the home or are actively seeking employment. Check out the IRS site for more information.

The federal tax credit varies and is based on a percentage of your household income, ranging from 20%-35%. The more you make, the smaller the percentage number.


The dependent care reimbursement account (DCRA) is like the medical flexible spending account you may have through work. You contribute money, usually through deductions from your paycheck, into an account. These funds are non-taxable and are used to pay for child care expenses. Just make sure ahead of time that you know what expenses are eligible.

The trick to this account is to underestimate the costs rather than overestimate. If you have any money left in the account at the end of the year, they will not be carried over to the following year and you will lose them.

Your best bet is to review your individual state’s government site each year to review their specific guidelines and time lines.

Pick One

While both the federal tax credit and the DCRA have their advantages, you can only choose one. You’ll need to do the math to see which makes the most sense for your family and which will save you more in the long run. Again, check out your state’s government site; chances are they’ll have an online calculator to help you add it all up.