Is It Time to Raise Your Rates?

Starting July 15th, parents in your program will receive $250 or $300 per month per child from the IRS. Because parents will have this extra income, it may be time to consider raising your rates.

What is happening?

Under the American Rescue Plan Act recently passed into law, the Child Tax Credit for 2021 has been expanded to help families with children. The credit is $3,000 per child between the ages of 6 and 17 as of the end of 2021, and $3,600 for a child under age 6 as of the end of 2021. Half of the credit will be paid in advance over the second half of this year. The other half will be claimed on the parent’s tax return at the end of the year.

You may also be eligible for this credit if you have young children of your own!

To qualify for this credit, you must have an adjusted gross income of less than $150,000 for married taxpayers filing jointly, $112,500 for heads of household, and $75,000 for single parents. These numbers are based on your 2020 tax return, Form 1040, line 11. If you haven’t filed your 2020 tax return, it will be based on your 2019 tax return. Parents and you don’t have to do anything to get this credit. The IRS will send out the money monthly, either through direct deposit or a check in the mail. These payments are not taxable income. It’s a one-year program for 2021. You can decline to receive these monthly payments and claim the full credit on your 2021 tax return.

To be eligible, your child must be related to you and live with you for at least six months of the year. The child must be claimed as your dependent on your tax return and must be a US citizen, a U.S. national or U.S. resident alien.

Note: You are eligible even if you had no income or didn’t pay any taxes in 2020. This means you could have been closed for most of 2020 and still be eligible for this credit.

The Child Tax Credit has been around for many years. In previous years it was a $2,000 credit and you needed to earn at least $2,500 to qualify. And it only applied for children under age 17.

What about increasing your rates?

I think it is reasonable to consider raising your rates because of the extra income parents will be receiving as of July. A parent with one eligible child will be receiving either $250 or $300 per month, depending on the age of the child. If they have two eligible children, they will get $500 or $600 per month.

The difference between the previous Child Tax Credit and the expanded credit for 2021 is $1,000 or $1,600 depending on the age of the child. That's how much more parents are receiving this year. That represents about $19 or $30 extra per week you could charge without it costing the parent any more money. You could say to parents, "I know that you may be receiving a check from the IRS under the Child Tax Credit starting this July. I've been think about raising my rates and have decided that now is the time. As of August, my rate will go up to ______."

I’m not saying you must raise your rates. It’s up to you. If you decide to do so, you don’t have to raise your rates equally for all parents. You can raise your rates for new families only. If you are caring for subsidy children and the parents must pay you a copay, you may want to start enforcing this payment if you are not already doing so.

In my experience, many family child care providers undercharge for their service. They charge much less than child care centers while offering the same or higher quality care. If you do decide to raise your rates, make a change in your contract and ask the parents to sign the new contract. It’s not enforceable until they sign it.

What to do with more money?

If you do raise your rates, or if you do get money for your own children through the Child Tax Credit, what should you do with it? You may want to spend down your debt (credit cards, car loans or student loans). You may want to start or add to an emergency fund to help you cope with the next financial crisis. You may want to save for your retirement. You may want to take a vacation! Whatever your decision, make a plan. Don’t spend this extra money on things you don’t need. Try to use this new money to help you meet your short or long-term goals.

Tom Copeland – www.tomcopelandblog.com

Image credit: https://www.parentmap.com/article/when-your-child-has-favorite-parent