Child Care's Super Expensive. Is Help On the Way?
For all of the noise and frustrating Facebook punditry, the good news about election years is that they force candidates to shine a much needed light on real problems facing American families.
When families in most of the U.S. pay more for child care than housing or college tuition, there is a problem. Democratic presidential candidate Hillary Clinton acknowledged this problem recently, suggesting a cap at 10 percent on household income to be spent on child care costs. By comparison, most families are currently spending about 30 percent of their income on childcare.
Families are struggling with these costs -- and it shows. According to Care.com's second Cost of Care survey, 69 percent of parents said the cost of child care influences their career choices.
This isn’t to say that there is a complete lack of support for families facing the financial strain of having children. Though subsidized child care is a relatively uncommon benefit offering, a growing number of companies support families by connecting families with primary or backup child care. According to the Families and Work Institute, more than half of companies offer Dependent Care Assistance Programs, which allow employees to contribute up to $5,000 per family as a payroll deduction.
And, on a national scale, families can take advantage of the Child Tax Credit, which could reduce federal income tax by up to $1,000 for each child. Then there are Child and Dependent Care Tax Credits (CDCTC), which we'll explain in greater detail.
How Does the Child and Dependent Care Tax Credit Work?
In order to qualify for the CDCTC, you (and your spouse) must be employed, searching for work or enrolled as full-time students.
Then you can itemize your care-related expenses. This can be anything from day care to summer camp. The current law sets an expense limit of $3,000 for one dependent or $6,000 for two or more.
This gets you a credit to help offset your family’s tax liability. The amount is between 20 and 35 percent of the expenses, based on the family’s adjusted gross income. Let’s say a family has two parents and one child. If their adjusted gross income is less than $15,000, then the family qualifies for the maximum 35 percent of their expenses. So, they get a credit of $1,050.
For a family with an adjusted gross income is greater than $43,000, they would receive 20 percent, which is $600 (for one child). This does not quite cover two weeks of day camp -- let alone one week of overnight camp. It’ll get you roughly three weeks of after school baby-sitting, or about half that time if you have a nanny.
The expense limit of $3,000 has increased from the $2,400 it was in the 90s. The current law is a result of the 2001 tax cuts, which means that 15 years have passed since the limit has increased. To put it in perspective: 2001 was the year that Apple released its first line of iPods. That’s iPod, with an “o.”
So that got us thinking, what else has changed since then?
- Median household income has decreased from $56,447 in 2001 to $53,657 in 2014.
- The percentage of the US population living in poverty rose from 11.3 percent in 2001 to 14.8 percent in 2014.
- The average price for a gallon of gas went from $1.64 in 2001 to $3.34 in 2014
- A gallon of milk shot from $1.59 to $3.50.
So How Expensive is Childcare?
In a study on the affordability of child care, The Economic Policy Institute (EPI) found that among families with two children (4- and 8–years-old), childcare exceeded rent in 500 out of 618 family budget areas. They also found that infant care costs more than the average in-state college tuition at public 4-year institutions in 33 states and the District of Columbia.
The Department of Health and Human Services sets a threshold at 10 percent of a family’s income- to be spent on childcare- as the affordable amount for a family to live a modest, yet adequate, life. This is the same threshold that Hillary Clinton has proposed. EPI’s study found that of the 618 family budget areas surveyed only a handful meets the 10 percent standard. Simply put, the current costs of childcare are unsustainable.
Possible Policy Support?
Government policies can definitely help here. For example, President Obama’s 2015 proposal to streamline child care tax benefits would increase the expense limit so families could claim a 50 percent credit for up to $6,000 of expenses per child under the age of 5. It would also make the maximum credit available to families with incomes up to $120,000. With this new system, most middle-class families could easily determine the amount of aid they would receive.
Hillary Clinton’s proposal would also help manage the straining cost for lower and middle class families. After capping the expenses for child care at 10 percent a “combination of subsidized child care and tax credits” would be used to allow families to access high-quality childcare without the financial burden.
Initiatives like these further show that families and childcare are a priority not only personally, but economically as well. However, it is not up to the government alone to provide relief when it comes to these rising costs.
So What Can You Do?
Employers: Offer family-care benefits to help employees manage the work-life balance, like flexible schedules child care resource and referral and backup care to help when last-minute care is needed.