Author Lois Wyse spoke for a lot of grandparents when she quipped, “If I had known how wonderful it would be to have grandchildren, I’d have had them first.” Parents who otherwise might not be able to assist their adult children financially are often very willing to help out when it comes to the grandkids.
That’s a plus for the post-Baby Boomer generations who are facing steep costs when it comes to childcare. According to the U.S. Department of Labor, parents spent between $6,552 and $15,600 annually for full-day daycare for one child. This equated to 9%-16% of median income. Parents of infants could pay twice as much.
These high costs motivate many grandparents to help their adult children manage their childcare responsibilities. There are several ways to pitch in:
- Direct childcare
- Paying for daycare or other costs
- Serving as a full-time caregiver to grandchildren.
Direct Childcare
According to a 2023 Harris poll, 42% of working parents depend on grandparents for childcare. This can benefit all three parties: parents, grandparents, and grandchildren.
Less Cost – Grandparents often care for grandkids at no or low cost.
Trusted Caregivers – Grandparents are well-known by both parents and children. (Of course, that might also be a reason NOT to let grandparents babysit if they’re unreliable.)
Flexibility – Grandparents may be more likely to cover hours and days when professional caregivers are not available.
To minimize stress with such arrangements, grandparents and their adult children should agree on ground rules such as:
- How will scheduling times and dates for grandparent caregiving be handled?
- Amount of pay, if any.
- Drop off and pick up times.
- Times for meals, play, media (TV/computer), sleep, and any special events like doctor visits.
- Meals and snacks – What food and who provides it?
- Safety and health – Making the caretaking environment “child-safe” and listing emergency contacts and under what circumstances they should be contacted.
Agreements also need to be made about behavior management. Different parenting philosophies should be discussed and resolved at the outset. Both parties need to be as flexible to focus on the grandchild’s best interests.
Finally, it’s essential to acknowledge that the arrangement will evolve over time. At some point, childcare provided by grandparents will no longer be needed, so setting expectations early on could help preserve good family relations over the long run.
Paying for Daycare
While some grandparents are willing to babysit their grandchildren, they may live too far away for this to be an option. As an alternative, they could help pay for various childcare expenses.
If, for some reason, paying daycare expenses doesn’t work, grandparents can help financially in other areas. This assistance can free up funds so adult children can cover childcare costs independently.
Grandparents as Full-Time Caregivers
Sometimes, grandparents become their grandchildren’s full-time caregivers. In 2021, the U.S. Census Bureau reported that around “6.7 million people or 3.3% of adults age 30 and over lived with their grandchildren in 2021.” Fortunately, grandparents taking on this commitment can take advantage of some tax breaks if they can claim a grandchild as a dependent on their income tax return.
Head Of Household Filing Status
An unmarried grandparent may qualify for Head of Household tax filing status. To be eligible, the taxpayer must provide a home over half the year for a dependent grandchild under 19.
Earned Income Credit
A working grandparent with a dependent grandchild living in the household might be eligible for the earned income tax credit if adjusted gross income falls below a specified threshold and meets other requirements.
Child Tax Credit
A grandparent providing full-time care for a grandchild under 17 may be able to claim a $2,000 per child tax credit. The Additional Child Tax Credit (ACTC) refundable portion is worth up to $1,700 for each qualifying child. That’s how much families can claim if the credit exceeds the taxes owed.
Credit for Childcare Expenses
A grandparent earning income may be able to claim tax credits up to $3,000 for child and dependent expenses, assuming grandchildren are entirely dependent and under 13 years old.
Education Credits
For grandparents paying educational expenses, tax credits can be claimed for higher education expenses at accredited institutions for dependent grandchildren. For example, the American Opportunity Tax Credit (AOTC) can provide up to a $2,500 tax credit. Unfortunately, higher-income taxpayers may not be eligible.
Deduction for Interest on Qualified Education Loans
Grandparents taking out a qualified student loan for the benefit of a dependent grandkid’s higher education may be able to claim a deduction for up to $2,500 of interest paid annually.
Medical and Dental Expenses
A taxpayer who itemizes can deduct some unreimbursed medical and dental expenses paid for a dependent grandchild. The deduction takes effect if the combination of the grandchild’s medical costs and the grandparent’s medical deductions total exceeds 7.5% of the adjusted gross income of a grandparent 65 or older.
There are many ways grandparents, by supporting their grandchildren, can help their adult children financially and otherwise. In each case, it makes sense to assess the financial implications and the potential impact such help will have on intra-familial relationships in the long run.
Read the previous articles in this series here.
Let’s Have a Conversation:
How do you help your adult children when it comes to grandkids? Do you care for your grands directly or pay their childcare expenses? What else works for you and your adult children?
