Finding a balance between work, family, and finances is no small task, especially when you're choosing the right childcare option. Every family has its unique needs, and every childcare option comes with its perks, downfalls, and, yes, costs. From daycares to nannies to in-home care, understanding what works best for your family begins with one of the most important questions: how does it align with your budget?

This guide will walk you through key childcare options, their costs, tax breaks you might not know about, and tips to make your choice just a little easier.

Understanding Childcare Options

There’s no “one-size-fits-all” solution for childcare, it all depends on your family's needs, schedule, and finances. Below, we break down the most common choices and what they usually cost.

Family & Friends Support

Often the most affordable option, leaning on family or close friends is an amazing option if it’s available to you.

• Cost: Generally free or involves a small token of thanks.'
• Perks: The comfort of knowing your child is with someone you trust.
• Considerations: Not everyone has access to this option, and it may not be a consistent, long-term solution.

Nerd Note: Did you know that nearly 40% of parents in the U.S. rely on unpaid care from family members at least some of the time?

Daycare Centers

Daycare centers are a popular choice offering structured programs, lots of socialization, and a school-like environment.

• Cost: Between $1,000 and $2,500 per month, depending on your location and the child’s age.
• Perks: Kids get to interact with peers, preparing them socially and academically for school.
• Considerations: Costs can add up, and waitlists in high-demand areas can be long, make sure to plan ahead!

Nannies 

Hiring a nanny offers a highly personalized childcare experience right in your own home.

• Cost: $10 to $30 per hour, depending on the nanny’s experience and where you live.
• Perks: Individualized attention and a flexible schedule.
• Considerations: You’ll need to factor in additional employer responsibilities like taxes (known as the “nanny tax”, we’ll get to that shortly).

Nerd Note: While it might be tempting to pay your nanny “under the table,” doing so makes you ineligible for tax credits like the Child and Dependent Care Credit, which we’ll explain later. 

Family Daycare

Licensed caregivers run smaller daycare programs out of their homes, offering a cozier alternative to large daycare centers.

• Cost: Often more affordable than daycare centers, with fees varying by location.
• Perks: Smaller group sizes can mean more individual attention for your child.
• Considerations: Limited availability and potentially less structured programs compared to larger centers.

After-School Programs 

If your child is school-aged, after-school programs provide care from the end of the school day until evening.

• Cost: Often the most affordable option for older children, available through schools or community centers.
• Perks: Keeps kids entertained and safe while you finish your workday.
• Considerations: Hours can be limited, if you work late, you may need to make other arrangements for extended care.

In-Home Caregivers 

Specialized or long-term childcare arrangements that bring a caregiver into your home full-time.

• Cost: Costs can vary widely and often involve additional responsibilities like payroll.
• Perks: Ideal for families needing consistent, tailored care.
• Considerations: Employer tax requirements and higher costs compared to group care options.

Au Pairs are often a solution for lower hourly cost In-home care. This is worthwhile considering for those with busy schedules and a home with enough space to provide a place to stay for the Au Pair. Note that often times they will have set hours where additional work is paid on an hourly basis and need to be provided with a vehicle.

Tackling the Tax Side of Childcare

Childcare isn't just an expense, it can also be a source of savings if you know where to look. 

The Child and Dependent Care Credit 

This credit allows working parents to claim a percentage of eligible childcare expenses on their taxes.

• Savings: You can claim up to 35% of childcare expenses, depending on income.
• Requirements: Payment must be documented, for example, through checks or a payroll service.
• Pro Tip: Make sure to ask for a receipt!

Nerd Note: Paying your caregiver on the books could save your family hundreds or even thousands each year in taxes through credits and deductions. 

The Nanny Tax Explained

If you’ve hired a nanny or in-home caregiver, you become their legal employer, and that comes with some responsibilities.

• What It Covers: Social Security and Medicare taxes (7.65%), as well as perhaps unemployment tax.
• How to File: Schedule H is used to report household employment taxes with your annual tax return, and services like Homework Solutions & Poppins Payroll make this a breeze.
• Why It’s Important: Legal compliance gives you peace of mind and provides your caregiver with important benefits.
• All in Costs: If you are anticipating paying $2,000 a month for a nanny, that would be in addition to at least $1,836 in payroll taxes and ~$750 in payroll administration fees for a total of $26,586

Making the Right Choice for Your Family 

Ultimately, the right childcare choice is one that meets your family’s budget, schedule, and values. To help make your decision:

• Ask Key Questions:
  • Is employer-assisted childcare available to you?
  • How much flexibility do you need?
  • Does your child thrive with lots of social interaction, or do they prefer smaller, quieter settings?
• Plan Your Budget: According to the Urban Institute, childcare often eats up 10%-20% of a family’s income. Ensure you factor this into long-term financial planning.
• Know What Matters Most: Quality care doesn't always have to come with the highest price tag. Trust in what feels right for your family dynamic.

Nerd Note: Whether it’s a waitlist for daycare or finding the perfect fit with a nanny, you may not land on the best option overnight, and that’s okay.

Finding Peace of Mind

Balancing childcare and budgeting may feel overwhelming, but with the right information and planning, you can make a choice that works for your family. Keep in mind that this is about more than costs, this is also about creating an environment where your child can thrive. 

Whether you’re navigating tax credits, budgeting for daycare, or setting up nanny payroll, a little planning goes a long way. And remember, you don’t have to go through this alone. At HealthyFP, we’re here to provide guidance every step of the way. 

Need help tackling your childcare finances? Connect with one of our experts today!