Child care costs rise with inflation. Parents may hope to receive some financial relief through tax deductions and credits. However, recent cuts to both the child tax credits and deductions may mean that you won’t get as much as you expected.
If you are like me, you may end up paying Uncle Sam instead of receiving a refund. You may need to review some of your child-related expenses in order to make your money stretch further in 2023. According to financial professionals, here are some strategies for reducing your costs.
Many of the tax deductions and credits parents received during the height of pandemic are now back to their original levels. Alton Bell II (principal accountant, founder of Bell Tax Accountants & Advisors, Chicago) says parents should expect to receive less this year.
He says he would prepare for a shock in the form of a tax refund reduction shock as the credit surrounding dependent care has changed significantly.
The child and dependent care credit was increased in 2021 to make child care more affordable for parents who work. The maximum amount allowed was $4,000 for one person, $8,000 for two or three persons who are eligible and it is refundable. The amount for 2022 has been reduced to $1,050 per qualifying person and $2,000. For two or more, it is now $1,050. The child tax credit will be reverted to $2,000 for all children for the 2022 tax year. It was $3,600 for children younger than six years old and $3,000 for those aged 6-17.
These are the cuts I made. It was a smart decision to forgo aftercare for my 5-year old son. Although my living room might look more like a volcano eruption, I will save $200 per month. This is a great option for remote workers who can manage having their child home for a few hours each day.
You could also contribute to a Dependent Care Flexible Savings Account, which allows you use pre-tax dollars for child care. Bell recommends that you max out the account and, if possible, use an employer FSA match.
Each household can contribute $5,000 to a dependent care FSA by 2023. If you are married filing separately, $2,500 is possible.
You may want to look for ways to lower your grocery bills if your snack cupboard runs out within three to five days due to your children’s overeating habits. If inflation is a factor, this may be a sign that you are feeling the pinch of rising food costs.
Plan your shopping ahead of schedule to save money and avoid purchasing unnecessary items. Dominique Broadway is a personal finance expert who founded Finances Demystified Miami in Florida. She switched to grocery delivery to know exactly how much she will spend.
Broadway recommends that you place the same groceries into different delivery service provider carts to allow for side-by-side price comparisons.
You’ll be amazed at the amount of difference that can exist. Delivery fees and inflated prices can sometimes make the difference between 40 and 50 dollars. She says that this can add up over time.
When you pay your premiums monthly, it can be a significant expense. Your out-of-pocket expenses can be increased by adding copays to every visit to the doctor.
A health savings account can be a great way to save money if you have a healthy child. HSAs may be used to cover health care expenses. In 2023, the maximum HSA limit is $3,850 per person and $7,750 per family. Contributions are pretax and tax-deductible. To contribute to an HSA, you must have high-deductible insurance. Some people save money by choosing high-deductible plans that have lower premiums. These plans may have a higher deductible than normal before your insurance begins sharing your health care costs.
It was a good idea to test it in 2022. My out-of-pocket expenses were only $700, since my son and me went to the doctor only a few times in that year. My employer contributed $1,500 to my HSA account. This was the cherry on top. This money can be rolled over to the next year.
My house was filled with so many toys that by 2022, my son and me had given away half of them. I am trying to cut costs this year by making more use of the free activities.
Parents often buy their children things, but they soon realize that what they really value are experiences.
She says that she bought a Target $3 activity kit and had hours of fun with her children. It was cheaper than buying toys for them. I believe that this alone is a great way .”
A trampoline park is located near our home and offers a $20 per month subscription that allows for unlimited play. It seemed more economical to take my son to the trampoline park than to purchase more excavators and trucks that I will end up tripping on.
To save money this year, Broadway recommends that you open a custodial account to cover future child-related expenses and help your children build wealth.
“Take the money and put it to work for your children.
This article is by NerdWallet. It was originally published in The Associated Press.