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What to expect when you pay for day care

The largest financial commitment many new parents make is also the most emotional: choosing a full-time caregiver as you head back to work.

As many parents know, it’s a giant expense. In 31 states and the District of Columbia, the annual average cost for putting an infant in day care full time was higher than a year’s tuition and fees at a four-year public college in that state, according to a study released this month by Child Care Aware of America, a nonprofit group.

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Add a second child to the mix and suddenly the costs of full-time day care exceed the annual median rent payments in every state, according to the analysis, which uses 2012 data from the Child Care Resource and Referral’s state networks and local agencies.

Incorporating this expense into the family budget is disruptive, to say the least.

Entrusting your little one to a caregiver isn’t exactly the time to bargain-hunt, though some parents may feel they need to spend more than they actually do. But families across all income levels will need to run the numbers. That includes anticipating unexpected costs, and perhaps considering options, like an au pair. Here a look at what to expect.

Affordability: You probably intuitively know how much you can generally afford to spend without making drastic lifestyle changes. But if you were to sit down with Kristin Harad, a financial planner in San Francisco whose firm, VitaVie Financial Planning, focuses on new parents, she would make sure you “know your numbers.” That includes how much income you have, figuring out your fixed costs (like your mortgage), how much you can continue to save for other financial goals, and what varies month to month.

Your choices don’t have to be restricted to one arrangement. “Sometimes they go to day care three days and have a nanny for two,” Harad said.

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What options cost: Some parents believe that day care will help prepare their child for the world, or at least kindergarten, while others are willing to pay top dollar for a nanny who won’t be distracted by other children. But for many, the arrangement will largely be driven by what they can afford.

In most situations, costs tend to vary by the child’s age, the hourly commitment each week, and where you live. According to Child Care Aware’s research, in the District of Columbia, the average cost of full-time day care for an infant was $21,948 annually. In Massachusetts, it was $16,430 a year, and in New York, $14,939.

Nannies typically cost more, though they can be cost-effective when you have more than one child. According to Care.com, the national average hourly rate for nannies is $11.73; the figure reflects the rates posted on a sampling of the 150,000 job postings on their website for roughly the last year.

Unexpected costs: Several not-so-obvious costs may also arise. Do you need another caregiver when day care is closed, or when the nanny is on her (paid) vacation? Some parents are also surprised when it comes time to pay a nanny’s holiday bonuses (a week to two weeks of pay). There are also the complex tax- and insurance-related requirements of becoming someone’s employer. “Most families don’t realize that once they bring a provider in the home and they earn $1,800 a year or more, that quickly you become an employer,” said Donna Levin, cofounder of Care.com.

Tax breaks: If your employer offers flexible spending accounts for dependent care, this is usually the better option for higher-earning couples: You can set aside up to $5,000, before taxes, to pay for care for children younger than 13. Or you can use the child and dependent care credit, which is worth 20 to 35 percent of qualifying costs, depending on your income, up to $6,000 for two or more qualifying individuals.

Shopping for care: Parents need to comparison shop. But the most important variable may be simpler than what many new parents think.

“When it comes to quality of care, it really boils down to the relationship between that child and the people who are taking care of that child,” said Walter S. Gilliam, associate professor of child psychiatry at the Yale School of Medicine.

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