Home > Babies and Toddlers > Childcare > Choosing a Daycare > Your Family's Need for Childcare
|

Your Family's Need for Childcare

Start with the Monetary Expenses
While the childcare decision is not usually strictly a financial one, it is easiest to start by tallying up the monetary expenses. First, calculate your house­hold's tax liability. Figure your taxable income (including your spouse's, if applicable) by subtracting all deductions and exemptions to which you are entitled. Consult the IRS tax tables, found in the instructions accompanying Form 1040 or 1040A, to determine your tax. Then subtract from that amount all tax credits for which you are eligible. Add to the total any other taxes you may owe, such as FICA (Social Security and Medicare taxes) and state income tax (if any). This amount is your total tax liability.

To your tax liability amount, add the yearly expenses that you incur solely because of the fact that you work. These costs include the gas money you spend to get to work and the parking fees you would not have to pay if you did not drive every day. Add extra expenditures that you make for items such as work clothes and lunch that you would not be purchasing if you did not work away from home. Include in your total either the amount that you already spend or the estimate of what you would spend for your childcare arrangement.

After adding up taxes paid and work-related expenses incurred, sub­tract that total from your gross income. Now you have what this book will call your net cash benefit, which is the annual dollar amount you have, free and clear, as a result of your hard work.

    Example: In 2004, Hank and Wendy have two children, ages 12 months and 5 years. Hank earns an annual salary of $60,000; Wendy's is $40,000. Wendy has a short drive to work, and eats lunch out only a few times a month. As a result, she has only a little more than $1,000 worth of nontax, work-related expenses. The breakdown of their financial situation, both with and without the second income, is as follows.
Assumption Two Incomes One Income
Gross income $100,000 $60,000
Less: Standard deduction and exemptions ($22,100) ($22,100)
Taxable income $77,900 $37,900
Tax (according to tax table) $12,956 $4,974
Less: Child Tax Credit and Credit for Child and Dependent Care Expenses ($3,200) ($2,000)
Net federal income tax due $9,756 $2,974
Plus: FICA and State income tax $10,450 $6,270
Total tax liability $20,206 $9,244
Plus: Day care expenses $13,000 n/a
Commuting expenses $1,605 $1,070
Extra lunch/clothing expenses $1,500 $1,000
Total work-related expenses $36,311 $11,314

When you subtract the combined work-related expenses from gross income in this example, you arrive at a net cash benefit of $63,689 for the two-income family and $48,686 for the single-income family. The difference in net cash benefit from giving up the second income of $40,000, therefore, is about $15,000.



More on: Childcare

|

Copyright © 2005 by Linda H. Connell. Excerpted from The Childcare Answer Book with permission of its publisher, Sourcebooks, Inc.

To order this book visit Amazon.com.


stay connected

Sign up for our free email newsletters and receive the latest advice and information on all things parenting.

Enter your email address to sign up or manage your account.

Facebook icon Twitter icon Follow Us on Pinterest

editor’s picks

get ready for school!

We’ve got your
shopping list,
lunch menu,
and more.

GO

highlights

Join BIC on our mission to save handwriting and Fight For Your Write! Writing helps kids become better readers, boosts their confidence and sparks their creativity. Visit BICFightForYourWrite.com to sign our petition to save handwriting!

7 Tips for Reading Aloud to Babies & Toddlers
The AAP advises reading aloud to babies and toddlers because it boosts brain power and has many other benefits. Get some tips for making the most of story time with your tot!

Kindergarten Readiness App Wins Gold
Our Kindergarten Readiness app won the Gold Award of Excellence in the educational category at the 2014 Communicator Awards. This valuable checklist comes with games and activities to help your child practice the essential skills she needs for kindergarten. Download the Kindergarten Readiness app today!

How to Survive Summer Boredom
When the kids are home all day, every day, summer boredom strikes hard and fast. Learn the best summer boredom busters and tips for surviving until September.

12 Birthday Party Favors that Won't Get Thrown Away
The next time you're planning a birthday, forgo the penny candy and cheap toys. Send your guests home with one of these fun and creative party favor ideas!