As the recent debate around federal policy changes to lift the debt ceiling raged on, Republicans and Democrats found themselves at odds once again. With Republicans focusing on increasing work requirements for public benefit recipients and Democrats advocating for family support services, both parties missed an opportunity to close the divide and focus on an issue that is central to many Americans: family caregiving.
The reality is that many Americans spend a considerable amount of time caring for family members who require long-term care. And while these family caregivers are a valuable asset to our workforce, they often must reduce their work hours or even retire early in order to provide adequate support for their relatives. But what if there was a way to support these individuals and simultaneously help alleviate financial stressors?
Enter the Child and Dependent Care Credit – a tax program designed to support working family caregivers. Although the name of this credit suggests it only benefits those in need of child care, it also subsidizes care expenses for adults who cannot engage in self-care, such as disabled spouses or parents. Eligible expenses include out-of-pocket spending on care both inside and outside of the home, as long as the caregiver has lived with the disabled person for at least six months out of the year.
While this credit is a step in the right direction, its reach is unfortunately limited. Expanding access to it and increasing awareness among workers could provide invaluable support to those who need it most. By supporting family caregivers, we not only help relieve financial stressors but also provide relief to our tight labor market by expanding a potentially valuable workforce.
Let’s not miss any more opportunities for compromise and start prioritizing family caregiving as an important issue that affects us all.
Maximizing the Effectiveness of the Caregiver Tax Credit
According to a recent working paper from Upjohn Institute, only 11% of spousal caregivers aged 50 to 65 qualify for the CDCC, and even fewer claim the credit. In recent years, only 2% of benefits went to childless taxpayers. However, there are ways to optimize the CDCC’s reach and impact.
Making the Credit Refundable
The CDCC is a nonrefundable tax credit that misses low-income households that do not earn enough to pay taxes. By making the credit refundable, eligible spousal caregivers could receive a tax refund. This simple modification would double the number of eligible caregivers to approximately 750,000 nationwide. The new policy would also benefit female, Black or Hispanic, and less-educated caregivers who disproportionately fall under the low-income bracket.
Addressing Generosity and Requirements of the Credit
To claim the CDCC, taxpayers must list care expenses and care providers’ tax identification or Social Security numbers on their tax returns. Additionally, the benefits max out at $600 or less per qualifying person for most households. These requirements and benefits do not make claiming the CDCC appealing for many families.
Taxpayers who pay their caregivers “under the table” may be particularly wary of claiming a tax credit that covers only a fraction of typical caregiving services’ costs. The current requirements to claim the CDCC may not be worth the hassle for those who do not find the credit generous enough.
Improving CDCC’s effectiveness would significantly aid spousal caregivers in dire need of income while promoting work. By making the credit refundable and revisiting its requirements, more eligible caregivers can take advantage of the benefits and ease the cost burden of caregiving.
Making the Dependent Care Tax Credit Work for Caregivers
Being a caregiver for a loved one can be an exhausting and emotionally draining task. In addition to the stress that comes with caregiving, it often necessitates taking time off work to tend to the needs of a dependent family member. Unfortunately, the current Dependent Care Tax Credit (CDCC) fails to deliver meaningful relief to the many adults who are compelled to stay away from work to take care of their loved ones.
However, a few key policy changes could make a significant difference in the lives of caregivers. Making the CDCC more generous and refundable, as was temporarily done under the American Rescue Plan Act of 2021, provides a roadmap for such an expansion. If made permanent, claiming the CDCC would become much more attractive to taxpayers, and an expansion would liberate family caregivers to spend more time working, increasing tax revenue and helping both families and the federal government’s budget.
In addition to these policy changes, renaming or separating out the tax program as a “dependent care credit” could dramatically increase program awareness and take-up among working-age adults who stand to benefit. With a more accurate name, such as “Dependent Care Credit,” adult caregivers would recognize that they are eligible for assistance.
A more generous and rebranded dependent care tax credit program would be a win-win for workers, employers, families, and all parties in government. It’s high time we provide meaningful relief to caregivers and acknowledge their invaluable contributions to society.