June 22, 2012
In the United States, more babies are born in the summer than any other season. Why is that important? Because if you've just had or are about to have a baby and you anticipate childcare expenses in 2012, this tip may save you as much as $1,700.
If you or your spouse have access to a Flexible Spending Account ("FSA") at your office, you'll be able to pay for up to $5,000 of childcare expenses using pre-tax dollars. That means you'll pay no income taxes or Social Security or Medicare taxes on that portion of your income. That'll save you $2,000 to $2,300 per year, depending on your marginal tax rate.
Unfortunately, FSAs only allow enrollment once a year. If you're not already enrolled for 2012, you'll have to wait until 2013 -- unless you've just had a "life-changing event" (i.e. the birth of a child). If so, you have a 30-day window after the birth of your child to enroll.
If you miss the window or don't have acces to an FSA, you can still capitalize on the Child and Dependent Care Tax Credit. If you have one child, it'll save you up to $600 per year; if you have 2 or more children, you'll save up to $1,200 per year. For more information, visit our Expert Advice page.