Gabrielle Pepin, an economist with the Upjohn Institute, has researched the federal Child and Dependent Care Credit extensively. She presents the paper “Not Just for Kids: Child and Dependent Care Credit Benefits for Elder Care,” coauthored by Yulya Truskinovsky of Wayne State University, at the Allied Social Science Associations annual meeting Jan. 6 in New Orleans.
About 10 percent of people aged 50 to 65 live with a spouse or parent who needs help with daily activities, and the cost of caregiving can strain household budgets. Help is available for many, however—but only if they look in the right place.
As we detail in our paper, “Not Just for Kids—Child and Dependent Care Credit Benefits for Elder Care,” taxpayers with a spouse or dependent incapable of self-care can take advantage of the federal Child and Dependent Care Credit (CDCC) to lessen their caregiving expenses. However, take-up of this benefit among those caring for adults is very low: as of 2019 over 95 percent of CDCC claims were made exclusively for child dependents.
We highlight potential benefits of the CDCC for families caring for older adults. Working households may claim up to $3,000 in care expenses for each of up to two qualifying individuals to receive a nonrefundable tax credit worth up to $1,050 per qualifying person. A qualifying individual is defined as a child younger than 13 or a coresident spouse or dependent who is “physically or mentally incapable of self-care.”
Combined with state tax credit supplements of up to $1,055 per person, benefits likely can make a difference: most individuals aged 50 to 65 living with spouses or parents in need of help combine work and caregiving, and about 20 percent have forgone care due to costs. We show that CDCC benefits decrease out-of-pocket costs of typical caregiving services, such as hiring a home health aide. This is especially relevant today, as costs of these services increased substantially in nearly every state between 2020 and 2021.
In addition, we find that a temporary COVID-19-related expansion of the CDCC during 2021 led to much larger cost decreases. We posit that a permanent expansion of the CDCC of similar magnitude—an increase of up to $4,000 per qualifying person—would encourage work while transferring income to caregivers.
In particular, we estimate that, in the absence of increases in the cost of care, such an expansion would increase labor force participation by about 10 percentage points among individuals aged 50 to 65 with caregiving responsibilities. (An increase in benefits of this magnitude likely would increase the cost of care a bit, which could mitigate some of the increase in work.) We discuss how an unprecedented number of families may stand to benefit from the CDCC now and in the future, as the pandemic led to increases in care needs and created financial difficulties for many.