A Seat at the Table: Do you even Care?

The Credit for Caring Act was recently introduced by sens. Joni Ernst (R-Iowa), Michael Bennet (D-Colo.), Shelley Moore Capito (R-W.V.) and Elizabeth Warren (D-Mass.), and Reps. Tom Reed (R-N.Y.) and Linda Sánchez (D-Calif.). If passed, this bill would create a nonrefundable tax credit, with a limit of $3,000, for family caregivers who are working. In order to receive this tax treatment, there are some criteria that must be met:

• Be a spouse, adult child, parent or another relation named under the “dependent” definition
• Help a loved one, of any age, who meets certain functional or cognitive limitations or other requirements, as certified by a licensed health care practitioner
• May or may not live with the loved one
• Have more than $7,500 in earned income for the taxable year
• Can document qualified expenses

AARP has publicly backed the bill, urging Congress to pass it as soon as possible. But is it really as wonderful as it seems?

I attended The Hill's Cost of Caring event, which presented a bipartisan panel discussing the financial strain of being a caregiver, along with the need for the passage of the Credit for Caring bill. Some of the panelists urged caregivers to share their stories, "from the ground," and one comment highlighted that women of color make up the largest percentage of caregivers. The personal stories were moving, and the passion behind helping caregivers seemed to be genuine. Unfortunately, though, no one highlighted the tax treatment effects of a nonrefundable tax credit.

Time for a tax law lesson! Just what is a nonrefundable tax credit?? 

It's just what it sounds like: nonrefundable, also known as a "wasteable tax credit." This means that the credit will only apply to the amount of the taxes owed by the taxpayer, with any overage going unused. In other words, once the tax liability is reduced to $0, a nonrefundable tax credit stops benefiting the taxpayer. Further, this type of tax credit only applies to the reporting year, and it may not carryover to future returns.

Why does this matter? Low-income taxpayers are not able to fully disgorge the benefit of a nonrefundable tax credit. This means that out-of-pocket expenses on care giving may not be offset by this credit, and a lack of a refund maintains the impact of a tight financial hold.

I do not support this bill as it is currently written, and I am surprised that certain sponsors of the bill would advocate for a nonrefundable credit. In the near future, I will try to investigate why the bill was crafted as such. In the meantime, let's take the panelists' urgent advice and connect with the voices on the ground. 

Thank you to Princess Coleman and Donna Nicol for sharing your experiences.

Music Credit: Archie Smith