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The Short Answer

Making the Most of Child-Care Tax Breaks

A dependent-care flexible spending account can be a great way to save for expenses while lowering your tax bill.

Question: My wife and I are getting ready to pay for summer camp for our two kids, which we usually do with money I set aside in a work-sponsored flexible spending account for child care. But I know there's also a federal tax credit for child care. How do I know which one is the best deal for us, and can I use both?

Answer: As you already know, child care can be among the most expensive aspects of parenthood. The cost of day care alone can easily exceed $1,000 a month, draining resources from the family budget. Fortunately, dependent-care FSAs and the child- and dependent-care tax credit can help ease the pain of these high costs for parents who must pay for child care in order to work, look for work, or attend classes full time.

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