CAlex, daycare is likely to cost much more than 700-800 per month. I've been researching it in SF for the past couple of months and feel lucky to have found one for 1250 a month. Average looks to be closer to 1500, with 2000 not uncommon. On top of that, most day cares have long wait lists. Perhaps things will be better in the suburbs, but I would not count on it.
The tax free payment option is something your employer may or may not offer. As far as I recall, you can have up to 5000 per year withheld pre-tax to be used for day care only. That's generally less than half of the actual annual cost of day care, but it's at least a small savings.