Child Care Costs Are Orphaned in the US Tax Code
Dependent care FSAs and tax credits scarcely make a dent in the cost of caring for kids.
Horrified at the cost of care.
Photographer: Frank Martin/Hulton Archive/Getty Images
Over the last four decades, the cost of child care has skyrocketed in the US. It now takes up almost 20% of median family income per child in major cities. But the tax benefit some workers use to offset those day care or nanny expenses has stayed the same — since 1986! When the amount was temporarily increased during Covid, it only became more obvious that the cap was hopelessly outdated.
Many working parents take advantage of what is called a dependent care flexible spending account through their employers. Almost 60% of employers offer dependent care FSAs. The account is similar to a health FSA, but the money that goes into a dependent care FSA is used for child care expenses, when those expenses allow a parent to work. That means parents can use pre-tax dollars to pay for a day care center, nanny, preschool or certain types of after-school care for kids under the age of 13. (The account can also be used to help with costs related to taking care of a dependent parent.)