Working parents of three and four-year-olds in Wales are entitled to 30 hours of free childcare a week for up to 48 weeks of the year.
Researchers found some parents were using up their entitlement early and receiving unexpected bills for some school holiday childcare.
The Welsh Government said the free childcare offer was helping families.
First introduced in pilot areas in 2017, the Welsh Government's flagship policy entitles working parents to 20 hours free childcare on top of the existing 10 hours of early education provision.
During the school holidays, when there is no early education, the offer provides 30 hours a week of childcare for up to nine weeks.
This is provided by registered childcare providers, such as nurseries, child minders and playgroups, who have signed up to the scheme.
An official research study for the Welsh Government shows that while it is saving families hundreds of pounds, there is still confusion about how the scheme works.
One parent said they were "extremely shocked" to get a bill for over £800 for childcare one month during the summer after not realising their entitlement had run out.
Another said she had been left with a large bill at the end of the holidays after not realising she was not entitled to the full period.
The report said there was also confusion over how the offer affects tax credits and issues with self-employed parents proving their eligibility.
It recommends more guidance is made available for parents about their childcare entitlement over the holiday months.
Who is entitled to it?
- All parents of three and four-year-olds can already access the early education entitlement of 10 hours a week during school term time
- To be eligible for the Childcare Offer for Wales - an additional 20 hours of childcare during term time, and 30 hours of childcare for nine weeks during the school holidays - you must have a child within the age range and earn on average a weekly minimum equivalent of 16 hours at national minimum wage (NMW) or national living wage
- Each parent must earn less than £100,000 per year
- If you are in a lone parent family you need to be working and if you are in a two parent family you both need to be working
- According to the report, an average of 13,500 children a month access the scheme
What do parents think of scheme?
Mother-of-two Sarah Rees from Penarth, Vale of Glamorgan, said the current system discriminated against student parents and those on zero-hour contracts.
Ms Rees, who is studying to become a lawyer and tutors part-time, said the cost of childcare made it impossible for parents to go back to work.
She has written to the Welsh Government to ask them to change the rules to help parents returning to employment.
"One child means a bill of £500 a week, two kids or more - it's not worth going to work," she said.
"It's time the Welsh Government listened to parents and made the change parents need, like access for those on zero hours contracts, basing the limit on household income and allowing parents in study to have some help too."
Another mother said while the free childcare had helped, it was a "minefield" as she had to pay for time her daughter was not there due to the way the nursery operated.
"It's easier to be out of work than trying to work and earning a decent wage after paying for childcare," she said.
Some mothers in Caerphilly said the free childcare had been a huge help and allowed them to return to work, one said with no family nearby it had helped her feel "like me again".
A Welsh Government spokesman said the childcare offer was delivering "positive benefits for families across Wales".
"More than eight out of 10 people have more disposable income as a result and more than half feel work-related decisions are more flexible. It also found there are more opportunities for training, learning and development," he said.
"We are considering all the issues raised in the evaluation. In the meantime, we would encourage families across Wales to see if they can benefit from the childcare offer."