How to Budget for Childcare: 2026 Planning Guide

What Percent of Income Should Go to Childcare?

There's no universal "right" answer, but here are common benchmarks:

Many families spend 20–30% of income on childcare during the infant/toddler years, then see costs drop as children enter free public school. Plan for this arc, not just today's cost.

Step 1: Understand What Care Actually Costs in Your City

Before building a budget, get accurate numbers for your market. National averages understate costs in expensive cities and overstate them in affordable ones. Use the table below as a starting point, then use our calculator for your zip code.

Step 2: Apply Every Tax Benefit Available

Most families leave significant savings unclaimed. Here's what's available:

Dependent Care FSA (DCFSA) — $7,500/year pre-tax (2026)

If your employer offers a DCFSA, you can set aside up to $7,500 per household for 2026 ($3,750 if married filing separately) through payroll, before tax. Each dollar skips federal income tax and the 7.65% employee FICA, and in most states state income tax too. On a full $7,500 that is $1,474 in the 12% bracket ($900 + $574 FICA), $2,224 in the 22% bracket and $2,374 in the 24% bracket, before any state savings. The $7,500 cap is set in IRC §129 (as amended by P.L. 119-21) and is not adjusted for inflation, so it is also the figure to use for 2027 plan-year elections during this fall's open enrollment. You need an employer plan to use one.

Federal Child and Dependent Care Credit

The 2026 credit is 20–50% of up to $3,000 in care expenses for one child or $6,000 for two or more. Married couples filing jointly with AGI from $43,000 to $150,000 get 35%, so the credit is $1,050 for one child or $2,100 for two. It is nonrefundable (it can't exceed your income tax). DCFSA money is subtracted from those expense caps first, so a full $7,500 DCFSA leaves nothing for the credit, even with two children. For most two-earner families in the 12% or 22% bracket, the full DCFSA saves more than the credit would; a smaller DCFSA election leaves the rest of the cap for the credit. Our DCFSA vs. child care credit guide works through where the crossover falls.

State childcare tax benefits

Many states offer additional credits or deductions: California, Massachusetts, Minnesota, and others offer state-level credits worth $200–$1,500/year. Check our Childcare Tax Benefits Guide for your state.

State subsidies (if income-eligible)

If your household income is below your state's threshold (typically 85–200% of FPL or SMI), you may qualify for a childcare subsidy that dramatically reduces out-of-pocket costs. See our How to Find Childcare Subsidies Guide.

Step 3: Reduce Costs with the Right Care Type

The biggest levers for reducing childcare costs are choosing the right care type and schedule:

Consider part-time care

3-day/week care costs 70–80% of full-time tuition at most centers. If you or your partner can flex a day from home, you can save $2,000–$5,000/year without changing providers. See our Part-Time Daycare Guide.

Home daycare vs. center

Licensed family daycares typically cost about 20% less than daycare centers on average. The care quality varies widely — vet any home daycare carefully — but a well-rated family daycare is a significant cost saver. See our In-Home Daycare Cost Guide.

Nanny share for two-child families

If you have two children, a nanny share reduces your per-family nanny cost by 30–40% compared to a solo nanny. See our Nanny Share Guide.

Au pair for larger families

An au pair's all-in cost is largely fixed (~$22,000–$28,000/year) regardless of how many children are in the home. For families with 2–3 children, an au pair can be significantly cheaper than daycare or a nanny.

Sample Childcare Budget: Three Income Levels

How the after-tax column is computed (2026 federal rules, married filing jointly, standard deduction $32,200, no state income tax counted): each of Families A–C puts $7,500 in a DCFSA. Family A ($95,000 AGI, taxable income $62,800) and Family B ($130,000, taxable $97,800) are in the 12% bracket: $7,500 × (12% + 7.65%) = $1,474 saved. Family C ($160,000, taxable $127,800) is in the 22% bracket: $7,500 × (22% + 7.65%) = $2,224. The full DCFSA uses up the credit's expense cap, so the credit is $0; claiming the credit instead would be worth only $1,050 for A and B (35% of $3,000) and $1,920 for C (32% of $6,000), so the FSA is the better choice in all three. Family D's figure is a subsidy copay, which varies by state. State income tax savings on the DCFSA would lower A–C further.

To run Family A's numbers with your own ZIP code, open the calculator prefilled for one infant, $95,000 AGI, married filing jointly and change the ZIP.

Frequently Asked Questions