Personal Finance
What is the Average Cost of Daycare & How To Help Pay for It
Childcare can help parents pursue their professional goals while ensuring the well-being of their children. Many parents, however, often struggle to afford the cost of childcare, according to the 10th annual Care.com “Cost of Care Report.” For the 10th year in a row, daycare costs are on the rise.1 As a result, parents may downsize other areas of their budgets — like vacations, leisure activities, or groceries — while they look for financial assistance and ways to get creative with their childcare budgeting and options.
How much are parents paying for daycare, and how can they help ease their financial burden? Here are some answers.
How much does daycare cost?
The cost of daycare can take up a sizeable portion of the family budget. In fact, U.S. families are spending an average of 27 percent of their income on childcare.1
Of course, costs can vary depending on a child’s age. Weekly daycare cost for infants averages $2841, while the weekly cost for daycare for a toddler is averages $2681. Daycare costs also vary with your location, and the size and type of daycare you choose. A small daycare in the suburbs will likely cost less than a larger daycare in a big city.
Can you get financial assistance for daycare?
From tax credits to workplace assistance, there are a variety of financial assistance options available to help ease the financial burden of the cost of daycare, including:
Workplace benefits
Some workplaces offer childcare benefits, stipends, partnerships with local daycares or in-office childcare programs. Check your benefits package or ask an HR representative to see what options are available.
Some employers also offer dependent care flexible spending accounts (DC-FSAs). These let you put a portion of your paycheck into a pre-tax spending account to use on dependent care expenses, including daycare. Putting money toward your child’s daycare expenses tax-free can help save you money in the long-term.
If you become unable to work due to an illness or injury, there are other benefits that can help you cover the cost of childcare. For example, supplemental health benefits can provide a lumpsum payment to use as you see fit, including childcare. Disability insurance can also help protect your income as payments can be put toward childcare expenses.
Government programs
The federal government finances statewide programs to help offset childcare costs. Each state has its own subsidy program that manages and distributes financial assistance to parents. However, these programs tend to have strict income guidelines and vary by state, so check with your state’s guidelines for specific details and requirements.
School subsidies
Many colleges and universities offer subsidies to students who are parents and need childcare, with some offering childcare centers right on campus to further support their students.
Tax credits
In addition to workplace, government, and school programs, there are three tax credits you may be eligible for that could help subsidize the cost of child care.2
- Child and Dependent Care tax credit: Working parents can itemize up to $3,000 in childcare expenses per child (with a $6,000 limit) using an IRS Form 2441.2 However, it’s important to note that families who use a dependent care FSA — which has a $5,000 cap — can’t claim those same expenses. They can only claim an additional $1,000 with this tax credit.3
- Child tax credit: Eligible parents can claim a child tax credit per child. This applies to all children under 17 years of age.4
- Earned Income tax credit (EITC): Low- to moderate-income parents may be eligible for the EITC, which varies depending on your income, filing status, and family size.5
Military daycare
Active service members may be eligible for military-sponsored, on-base childcare options. These options are based on a sliding fee scale, meaning the cost is adjusted based on your income. If you can’t find a military-sponsored daycare that fits your family’s needs — whether because of the distance, waitlists, or program itself — you can also apply for childcare fee assistance then put the money toward a daycare option that’s right for you.
Sibling discounts
Some daycares offer discounts for siblings to attend. Some daycares offer discounts for siblings to attend, which is a financial win for both the families and the daycare facilities. If you find a daycare that fits your family’s needs and has space for all of your daycare-aged children, this may be a good fit for you!
What are some daycare alternatives?
Traditional daycare isn’t your only childcare option. There are many forms of childcare available, and often, it’s just a matter of getting creative. Here are some options for when traditional daycare doesn’t fit your family’s needs or budget.
- Nonprofit centers: Look for free or affordable options through nonprofit organizations like local churches, community centers, gyms, Boys and Girls Clubs, or YMCAs.
- Shared babysitter or nanny: Consider reaching out to other working parents to split the cost of a babysitter or nanny.
- Babysitting swap: Babysitting swaps are exactly what they sound like. You babysit for a friend’s kids, and they babysit for yours.
- Family members: If you’re fortunate enough to have close family members, consider asking them for help with childcare.
There's no doubt that daycare can be a financial burden. But with some research, flexibility, and creativity, you may be able to find a great fit for your child and some money-saving opportunities for your budget.
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Nothing in these materials is intended to be, nor should be construed as, advice or a recommendation for a particular situation or individual. Participants should consult with their own advisors for such advice. Federal and state laws and regulations are subject to change.
1 “This is how much childcare costs in 2023,” Care.com, 2023, https://www.care.com/c/how-much-does-child-care-cost/
2 Child and Dependent Care Credit FAQs, https://www.irs.gov/newsroom/child-and-dependent-care-credit-faqs
3 “9 child care subsidies every family should know about,” Care.com, 2022
4 “Child Tax Credit,” https://www.irs.gov/credits-deductions/individuals/child-tax-credit, 2023
5 “Earned Income Tax Credit (EITC),” https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc