Not Just for Kids—Child and Dependent Care Credit Benefits for Elder Care

A growing number of adults in the United States care for a relative with a long-term illness or
disability. Family caregivers provide critical support while incurring substantial private costs,
including out of pocket expenses. The Child and Dependent Care Credit (CDCC) allows households to receive tax credits for certain expenses associated with the care of a dependent, defined
as a child under 13 or a spouse or other dependent who is incapable of self-care. However, very
few childless households claim tax benefits that may be used for elder care. In this paper, we
examine the value of the CDCC for qualifying households caring for adults. We first describe
CDCC eligibility requirements and benefits across the income distribution and by the relationship of the dependent. We show that potential benefits during 2021 are substantially higher
for a coresident dependent parent than for a spouse. We then use data from the Health and
Retirement Study to document the size of the population most likely affected by tax credits for
elder care, finding that, as of 2016, more than 10 percent of individuals aged 50 to 65 had a
coresident spouse or parent in need of assistance with activities of daily living. Using median
cost-of-care data, we estimate how state and federal CDCC benefits affect post-tax costs of
typical qualifying caregiving services, such as home health aides. We show that the different tax
treatment of households with coresident parents and spouses in need of help substantially affects
post-tax costs of care. This paper demonstrates the potential benefits of the CDCC for families
caring for older adults, highlights important heterogeneity in the value of the credit across family
types, and lays the groundwork for future investigations into how to design comprehensive tax
credits for older adults and their caregivers.