By Matt Rooney
Trenton has a message for working parents: Thanks for earning the money. Now hand over some of it to pay for the person who makes earning it possible. That is essentially New Jersey’s approach to child care.
It’s absurd, Save Jerseyans.
New Jersey politicians routinely talk about “working families” as though the phrase itself deserves a standing ovation for any politician who works it into a speech or onto a mailer. They announce task forces, commissions, initiatives, credits and ribbon cuttings. They tell parents that child care is essential to the economy. And then the tax code quietly treats one of the biggest expenses required to keep those parents working as something less than a legitimate cost of earning a living. Maybe it’s time to stop congratulating ourselves and fix the problem. Meanwhile, New Jersey subsidizes everything from pet pork projects for connected politicians to free lawyers for illegal alien criminals facing deportation.
Here’s an idea: New Jersey should make 100 percent of qualifying, work-related child-care expenses deductible from state taxable income.
Not 10 percent.
Not some convoluted credit that requires a tax accountant and a decoder ring.
Not another means-tested program with a government website that promises “easy access” while asking for seventeen pieces of documentation.
One hundred percent.
If you have to pay someone to care for your child so you can go to work, the state should not tax the money you had to spend to make that work possible.
That’s not radical. It’s common sense.
Child Care Isn’t a Luxury. It’s the Price of Admission.
Here’s where the academic jargon can take a hike.
The economic reality is remarkably simple. A parent cannot simultaneously be at work and provide full-time care for an infant. Unless, apparently, that parent works in the New Jersey Legislature.
For everyone else, there are basically three choices: pay for child care, have another adult provide it, or don’t work. And New Jersey child care isn’t cheap. According to New Jersey child-care market-rate data, center-based infant care costs approximately $21,000 a year. Center-based preschool care costs about $17,544. Family child-care homes cost approximately $15,000 for an infant and $13,680 for preschool care.
Those are annual expenses. Per child.
So let’s take a perfectly ordinary scenario: a New Jersey family with an infant and a preschooler, both in center-based care.
Annual child-care bill:
$21,000 + $17,544 = $38,544.
That’s nearly $3,212 every month.
Before rent or a mortgage.
Before groceries.
Before health insurance.
Before the electric bill.
Before New Jersey’s charming tradition of taxing virtually everything that isn’t nailed down.
The median income for a New Jersey family with children under 18 is approximately $131,717. That means center-based care for an infant and preschooler would consume roughly 29 percent of median family income.
Nearly one dollar in three. And somehow we’re supposed to look at the money spent on that care and say: “Yes, but let’s tax the income that paid for it.”
Why?
Here’s the Part That Should Embarrass Trenton
New Jersey already admits that child care can be a work expense.
The state has a refundable Child and Dependent Care Credit for qualifying taxpayers. To receive it, the underlying expenses generally must be incurred so the taxpayer can work or actively seek work. In other words, the government has already conceded the central point. Child care can be necessary to earn income. But New Jersey’s current solution is essentially to say: “We recognize this is a problem. Here’s a small credit. Please enjoy the paperwork.”
The state’s tax-expenditure report estimates that approximately 120,300 taxpayers relied upon the Child and Dependent Care Credit for tax year 2023, with an average credit of only about $199. The estimated fiscal cost of the program is roughly $25.2 million for 2026.
Think about that. A state where families can spend $38,000 a year on child care is offering an average benefit of roughly $200. That’s not a solution. That’s a participation trophy. And the people running the state know it. That’s why New Jersey has spent years talking about expanding child-care access, supporting providers and improving affordability.
Good. Now let’s take the next logical step.
Stop Taxing the Cost of Producing Income
There is a basic economic principle hiding in plain sight here.
Businesses deduct ordinary and necessary expenses incurred to produce income.
A trucking company doesn’t pay income tax as though fuel were profit.
A restaurant doesn’t pay tax as though the cost of ingredients were profit.
A manufacturer doesn’t calculate taxable income by pretending it didn’t have to buy raw materials.
Yet when a parent spends $20,000 or $30,000 on child care so that parent can earn a paycheck, New Jersey largely says: That’s your personal problem.
Why?
The household may not be a corporation, but the economic logic is the same. Money spent on necessary child care is money that cannot be used for ordinary household consumption. It is an expense associated with participating in the labor market.
That distinction matters. Suppose a parent earns $70,000 but has to spend $20,000 on child care to earn it. The headline number is $70,000. The family’s economic reality is considerably less. Yet the tax collector gets to look at the first number. A rational tax system should at least acknowledge the second.
What Would This Actually Put Back in a Family’s Pocket?
Let’s be clear about what a deduction means.
If a family deducts $38,544, New Jersey isn’t going to send them a $38,544 check.
Sadly, Trenton hasn’t discovered that particular form of fiscal magic.
A deduction means the family isn’t taxed on that portion of income.
Using New Jersey’s 5.525 percent marginal income-tax rate as an illustrative benchmark, a family with $38,544 in qualifying child-care expenses could reduce its state tax liability by approximately:
$38,544 × 5.525% = $2,130.
That’s approximately $178 a month.
For a family with one child in center-based infant care, the illustrative savings would be approximately $1,160.
For one preschool child in center-based care, approximately $969.
For a family-home infant-care expense of $15,000, approximately $829.
For family-home preschool care costing $13,680, approximately $756.
| Annual qualifying child-care expense | Illustrative tax savings at 5.525% |
|---|---|
| $13,680 | $756 |
| $15,000 | $829 |
| $17,544 | $969 |
| $21,000 | $1,160 |
| $38,544 | $2,130 |
These are illustrative figures, not promises that every family would receive exactly these amounts. Actual savings depend on taxable income, filing status, deductions, credits and the taxpayer’s marginal bracket.
But the order of magnitude is real.
For a family paying tens of thousands of dollars for child care, we’re talking about hundreds or potentially more than $2,000 a year in state tax relief.
That’s meaningful.
And unlike another Trenton program, the family doesn’t have to ask the state to spend somebody else’s money.
It simply gets to keep a little more of its own.
And Yes, This Is a Pro-Work Policy
Here’s the part progressives, conservatives and everyone in between ought to be able to agree on:
Work should pay.
When child care costs $20,000, $30,000 or $40,000 a year, the relevant question for a parent isn’t simply, “What’s my salary?”
It’s: “What will I actually have left after taxes and child care?”
That’s the real incentive calculation.
A parent considering returning to work is effectively comparing after-tax earnings against the cost of making employment possible.
That means expensive child care can create an enormous implicit tax on working.
A 100-percent deduction would not eliminate that problem.
But it would make working slightly less expensive. That’s exactly what a pro-work tax policy is supposed to do. It could also help reduce the financial penalty faced by households when a second parent enters or re-enters the workforce. And it would send an important message at a time when New Jersey desperately needs to think about retaining young families:
We want you to work. We want you to earn. We just won’t pretend that child care is free.
Don’t Turn This Into Another Trenton Bureaucracy
There is one way to ruin this proposal: make it complicated.
New Jersey could create a 47-page application, establish a new bureau somewhere in the Department of Treasury, require parents to prove the child-care provider’s favorite color, and announce a portal that crashes every April.
Or it could simply use rules that already exist. The deduction should cover documented, out-of-pocket expenses for qualifying care when the taxpayer—or both spouses, where applicable—is working or actively seeking work.
No double dipping.
No reimbursement of the same expense twice.
No deduction for expenses unrelated to employment.
No problem.
The tax code already knows how to verify expenses.
The government does not need to invent a new bureaucracy every time it discovers a problem.
And Yes, Lower-Income Families Should Get Help Too
A deduction is naturally worth more to someone who pays more in marginal taxes.
At the same time, we want to reward legal residents for (1) working and (2) starting families. That’s why New Jersey should keep its refundable child-care credit for lower-income households while adding the full deduction.
The two policies do different jobs. The refundable credit provides targeted assistance to families with limited tax liability. The deduction recognizes a broader economic principle: income spent necessarily to enable employment should not be treated exactly like income available for consumption.
There is no contradiction in doing both. It’s thoroughly Families First.
New Jersey’s Affordability Problem Isn’t Just One Tax Rate
This matters because New Jersey’s affordability crisis isn’t neatly contained in a single line of the tax return.
A family doesn’t wake up one morning and decide: “We’re leaving New Jersey because the marginal income-tax rate increased by half a percentage point.” Families add up everything.
Housing.
Property taxes.
Transportation.
Health insurance.
Food.
And child care.
That’s the actual affordability calculation. For a family earning the state’s median income for families with children—about $131,717—a $38,544 annual child-care bill is an enormous bite. New Jersey cannot make every one of those expenses disappear. But it can stop making the child-care problem worse.
Here’s the Choice
New Jersey can continue doing what it has done for years.
Create another task force. Announce another initiative. Publish another report. Offer another narrowly targeted program. Hold another press conference about how much Trenton “cares about working families.”
Or it can do something remarkably unglamorous: change the tax code.
Make 100 percent of legitimate, work-related child-care expenses deductible. Let parents keep more of the money they earned. Recognize child care for what it actually is—not a luxury, not a lifestyle choice, and not some frivolous expense that families incur because they enjoy writing $3,000 checks every month. It is a cost of working.
And if New Jersey wants people to work, the least it can do is stop taxing them on the cost of doing it. For a family with an infant and preschooler in center-based care, the illustrative state tax savings could be approximately $2,130 a year.
That’s $2,130 that doesn’t have to go to Trenton.
It can go toward the mortgage.
The grocery bill.
A 529 account.
A car repair.
A few days down the Jersey Shore.
A summer camp deposit.
Or, revolutionary concept… staying in New Jersey!
New Jersey politicians love talking about how they are fighting for working families. Here’s a chance to prove it. Stop taxing the cost of going to work. It’s cheaper than another task force and a whole lot more useful.
