Childcare Allowance, one of the most significant budget items for child-rearing is the childcare expense. Some parents are fortunate enough to work opposite shifts or have grandparents keep the children, but most people wind up having to pay someone to keep the children while the parents go to work. For millions of people, this expense is more than house payments or rent each month. This expense is just too much for many to handle alone. The recent pandemic has made it even more challenging. Thousands of families who could afford their payments two years ago are now finding that with fewer hours and closing businesses, their daycare dollars just don’t go as far. The government has always subsidized childcare, but we don’t always know what goes into these subsidies. Let’s take a look at how they work.
Assist Families in Need
Assisting families in need is the primary goal for subsidized childcare. The Brookings Institution has estimated that up to half of all working families fall below 200% above the poverty line[1]. While two hundred percent above the poverty line may sound fantastic, it’s not really that much money. The current Department of Health and Human Services calculation for this figure is $26,500 for a family of four[2]. Now, 200% of that number is only $53,000. Yes, in some US cities, this is enough to rent or buy a home, pay car payments and still have a little left to save. However, adding in childcare costs is enough to tear a family’s finances apart.
Types of Subsidies
Most of the subsidies are simply tax credits or a child care allowance. Many states do have childcare assistance for working families, but not everyone will qualify for these. The rest of them are primarily tax credits. They allow taxpayers to claim a portion of their payments on their taxes. The final type of subsidy is for a tax-free savings account through an FSA.
Criticisms
The Childcare Tax Credit has been criticized for not meeting the needs of the poorest families. These families often do not qualify because they do not make enough money or cannot afford to pay for care. Some of these subsidies are tax credits that offset the amount owed to the federal government. The childcare allowance is not income or financial relief for many families. Parents making very low incomes do not generally owe anyway, so they do not reap the same benefits that others do. Many of these subsidies or tax credits also require both parents to either be working or in school.
[1] https://www.brookings.edu/research/why-the-federal-government-should-subsidize-childcare-and-how-to-pay-for-it/
[2] https://aspe.hhs.gov/2021-poverty-guidelines
Current COVID-related shutdowns have caused many Americans to be out of work, but they have still paid into the childcare system. Pulling their children from these centers is not a wise choice. Some areas are so starved for adequate care that parents don’t want to lose spots in quality centers. The childcare allowances simply do not help offset the cost associated with these fees during lean times.
Final Thoughts
There are great reasons to subsidize childcare. It can help more families have two working adults and assist single parents in providing for their families. Most families do not plan to be at or below the poverty line. With the current changes in the economy, many of the families who were making ends meet are now below the threshold for paying childcare expenses. Subsidies and childcare allowances tend to come from tax payments as tax credits and aren’t funded through depositing money into someone else’s account.
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