What Is the Credit for Caring Act and How Does It Work?

Caring for an aging or disabled family member can be emotionally and financially challenging. Many caregivers cover significant expenses to ensure their loved ones receive proper care, often without financial support.

The Credit for Caring Act proposes a tax credit to help alleviate some of these costs. This initiative aims to provide financial relief to caregivers who pay out-of-pocket for caregiving expenses.

Eligibility Criteria

To qualify, individuals must meet requirements related to tax filing status, relationship to the care recipient, and financial contributions toward care. The proposed legislation focuses on family caregivers providing substantial support to an adult dependent with long-term care needs. The care recipient must require assistance with daily activities due to aging, illness, or disability.

Caregivers must have a direct familial or legal relationship with the individual receiving care, typically including spouses, children, siblings, or other close relatives. Some proposals have considered expanding eligibility to non-relatives serving as primary caregivers. Additionally, caregivers must incur significant out-of-pocket expenses for the dependent’s care, with a minimum spending threshold required to claim the credit.

Income limitations may apply, as tax credits often phase out for higher earners. Previous versions of the legislation suggested phaseouts beginning at adjusted gross incomes above $75,000 for single filers and $150,000 for joint filers. These limits aim to direct benefits toward middle- and lower-income households, which often bear the greatest financial burden of caregiving.

Qualifying Care Expenses

The Credit for Caring Act covers a range of expenses related to the care recipient’s well-being and daily functioning, including in-home assistance, adult day services, and medical equipment.

In-Home Assistance

Many caregivers hire professional aides or home health workers to help with tasks such as bathing, dressing, meal preparation, and medication management. Home health aides charge an average of $27 per hour, according to the Genworth Cost of Care Survey 2023. Payments must be made to a licensed provider or an individual meeting state requirements for caregiving services. Informal payments to family members may not be eligible unless structured as formal employment arrangements with proper tax documentation.

Some states require caregivers to pay employment taxes if they hire an aide directly. The IRS considers household employees subject to payroll tax rules if they earn more than $2,600 in 2023. Caregivers should maintain detailed records of payments, including invoices and receipts, to substantiate claims when filing taxes.

Adult Day Services

For caregivers who work or need respite, adult day programs provide supervised care in a structured setting. These programs offer social activities, meals, and medical supervision, improving the care recipient’s quality of life while allowing caregivers to manage other responsibilities. The National Adult Day Services Association reports that the average daily cost for these programs is around $78, though prices vary by location and level of care.

To qualify for the tax credit, expenses must be paid to a licensed adult day care provider. Some programs specialize in dementia care or rehabilitation services, which may have higher costs but still qualify if they meet the legislation’s criteria. Payments to unlicensed facilities or informal arrangements may not be eligible. Caregivers should verify that providers meet state licensing requirements and retain documentation such as contracts, payment receipts, and service agreements.

Medical Equipment

Many individuals with long-term care needs require specialized medical equipment for mobility, chronic condition management, or home safety. Eligible expenses may include wheelchairs, hospital beds, oxygen tanks, and home modifications such as stair lifts or grab bars. The IRS generally classifies these as deductible medical expenses under Section 213 of the Internal Revenue Code if prescribed by a healthcare professional and primarily used for medical care.

For the Credit for Caring Act, qualifying equipment must be purchased or rented for the care recipient’s direct benefit. If partially covered by insurance, only the caregiver’s out-of-pocket portion would qualify. Home modifications must be medically necessary rather than general home improvements. For example, installing a wheelchair ramp would likely qualify, whereas remodeling a bathroom for aesthetic reasons would not. Caregivers should keep receipts, prescriptions, and proof of medical necessity to ensure compliance when claiming the credit.

Claiming the Credit

Since this credit is nonrefundable, it can only reduce a filer’s tax liability to zero but does not generate a refund beyond what was originally owed. Caregivers who do not owe federal income taxes may not benefit, making it important to assess whether alternative deductions or credits offer greater savings.

To claim the benefit, caregivers must complete the appropriate tax form designated by the IRS, likely resembling Form 2441 (used for the Child and Dependent Care Credit) or a similar worksheet. This form requires details such as the care recipient’s name, Social Security number, and the total amount of eligible expenses paid during the tax year. Since credits can interact with other tax benefits, such as the dependent exemption or medical expense deductions, taxpayers should calculate the impact on their overall return before filing.

Tax software programs typically guide users through eligibility questions and calculations, but those with complex financial situations may benefit from consulting a tax professional. If multiple family members share caregiving expenses, determining who can claim the credit is important, as only one filer may do so per care recipient. The IRS often requires that the person claiming the credit provide more than half of the dependent’s financial support, so coordinating with family members can prevent filing errors.

Documentation and Record-Keeping

Maintaining accurate records is necessary when claiming the Credit for Caring Act, as the IRS may require proof of expenses and eligibility. Caregivers should organize receipts, invoices, and other financial documents related to care costs. Digital record-keeping tools, such as expense-tracking apps or cloud-based storage, can help ensure documentation is accessible when filing taxes.

Payment records are particularly important when expenses involve third-party providers. Bank statements, canceled checks, and written agreements with service providers help substantiate claims in case of an audit. If payments are made in cash, obtaining a signed receipt with transaction details—including the date, amount, and purpose—can serve as supporting evidence. For recurring expenses, such as home health services or medical supplies, keeping a ledger of monthly payments provides a clear audit trail.

Beyond financial documentation, caregivers should retain records establishing the care recipient’s medical condition and need for assistance. Physician statements, care plans, and insurance correspondence can demonstrate that expenses were necessary for the dependent’s well-being. If home modifications are made, such as installing mobility aids, contractors’ invoices and medical provider recommendations should be preserved.

Coordination With Other Incentives

Caregivers eligible for the Credit for Caring Act may also qualify for other tax benefits, but understanding how these incentives interact is important to maximize savings. Some tax credits and deductions cannot be claimed simultaneously for the same expenses, requiring careful planning to determine the most advantageous approach.

The medical expense deduction is one such consideration. Taxpayers who itemize deductions can claim unreimbursed medical expenses exceeding 7.5% of their adjusted gross income (AGI). If caregiving costs qualify under both the Credit for Caring Act and the medical expense deduction, only one benefit can be applied to each expense. Since tax credits provide a dollar-for-dollar reduction in tax liability, they often offer greater savings than deductions, which only reduce taxable income. Comparing potential savings under both options can help caregivers determine the best strategy.

Flexible spending accounts (FSAs) and health savings accounts (HSAs) also play a role in tax planning. These accounts allow individuals to use pre-tax dollars for qualified medical expenses, including some caregiving costs. However, expenses reimbursed through an FSA or HSA cannot be used to claim the Credit for Caring Act. Employers offering dependent care FSAs may provide an additional way to offset costs, but contribution limits and eligible expenses differ from those covered under the proposed credit. Reviewing IRS guidelines and consulting a tax professional can help caregivers navigate overlapping benefits effectively.