Being a working parent is no easy feat. Not only do you have to manage the demands of your job, but you also have to grapple with what could be some pretty hefty child care expenses.
The silver lining, though, is that there are several steps you can take to eke out tax savings. Here are a few to look at.
1. Contribute to a dependent care FSA
Many people are familiar with flexible spending accounts, or FSAs, in the context of healthcare. A dependent care FSA lets you set aside pre-tax dollars for child care costs, which include daycare tuition, after-school care, and summer camp.
This year, as has been the case in recent years, you can put up to $5,000 into a dependent care FSA if you’re a single parent or are married and filing a joint tax return. If your tax status is married filing separately, that limit is $2,500.
Basically, if you’re married and spend $5,000 or more on child care, you can allocate $5,000 to a dependent care FSA and then avoid paying taxes on $5,000 of income. If you’re in the 24% tax bracket, that saves you $1,240.
2. Claim the Child and Dependent Care Credit on your taxes
A tax credit is a dollar-for-dollar reduction of your tax liability. And the Child and Dependent Care Credit is a credit you can claim if you paid for care for a child under age 13 in your household.
Calculating the credit is a little tricky. You can claim a percentage of your child care costs of up to $3,000 for one child, or up to $6,000 for two or more children for the 2023 tax year. The percentage of these totals hinges on your income and ranges from 20% to 35%.
But as an example, let’s say you have a 6-year-old and a 9-year-old whose camp tuition costs a total of $7,000 in 2023. And let’s say your household income is $80,000. In that case, you can claim 20% of $6,000, or $1,200.
3. Don’t forget about the Child Tax Credit
The Child and Dependent Care Credit only allows you to claim the cost of care for children under age 13. But if you have older kids, you’re not out of luck. The Child Tax Credit allows you to claim up to $2,000 per child in your household under the age of 17.
To be clear, this isn’t a credit that’s reserved for working parents. You can claim this credit on your tax return regardless of whether you pay for child care or not. However, higher earners may not get to claim the credit in full, as it phases out for singles with an income of over $200,000 and married couples with an income of over $400,000.
Juggling a job and children is not a simple thing. The good news, though, is that there may be certain tax breaks available to you to ease the burden of having to pay for care — and to cover the cost of raising your children.
