Recently proposed legislation seeks to offer financial relief for unpaid family caregivers. Introduced in November 2023, the Lowering Costs for Caregivers Act of 2023 is the result of a bipartisan effort to lessen the costs of family caregiving. The American Association of Retired Persons (AARP) has also endorsed the bill.
If the act becomes law, it would amend the Internal Revenue Code to allow medical bills that you pay for your parents to count as qualifying medical expenses for health flexible spending arrangements (FSAs) or health reimbursement arrangements (HRAs). This would include health expenses for one’s parents as well as parents-in-law.
Flexible spending accounts
Flexible spending accounts and health reimbursement accounts allow individuals to set aside pre-tax money to pay for qualifying medical expenses. For HRAs, only employers provide funding, while both employers and employees can fund FSAs.
Under the current law, the funds can only go to the account holder’s medical expenses, as well as expenses for their spouses and dependents. It does not allow people to use their accounts to pay for their parents’ medical care.
By allowing use of FSAs or HRAs for parents’ health expenses, the Lowering Costs for Caregivers Act aims to help reduce some of the costs of caregiving.
Financial costs borne by caregivers
The proposed legislation addresses the ever-increasing costs facing the 38 million unpaid family caregivers in the United States.
One 2021 survey by AARP revealed the economic toll of caregiving. Unpaid family caregivers spend an average of $7,200 per year on caregiving expenses. Over three-quarters of caregivers report incurring routine out-of-pocket costs. Caregiving-related spending consumes more than a quarter of unpaid caregivers’ annual income.
When family caregivers provide financial support for their aging parents, more than half of these funds typically goes to housing. Housing expenses that caregivers help with include rent, mortgage payments, and assisted living fees.
In addition, adult children serving as caregivers might help cover costs associated with modifying parts of their parents’ home. Older individuals who develop mobility challenges often need changes to their homes to continue living there safely. For example, someone using a wheelchair may need ramps. Others may need bars installed on the walls and in showers to help prevent slips and falls.
Medical costs are also significant. The caregivers in AARP’s survey spent an average of more than $1,200 annually on health care expenses, comprising one-fifth of their spending. They supplied direct payments to health care providers, hospitals, and therapists. They also paid for medical equipment and devices, in-home care, and adult day care programs.
Those who must balance working full- or part-time jobs with caregiving – roughly six in 10 caregivers – faced increased financial strain. When caregivers struggled to manage employment and their duties at home, the yearly average they spent on caregiving increased to $10,525.
How caregivers can reduce expenses
While the financial cost of caregiving is often substantial, several strategies can help you save money as a caregiver.
By claiming a parent as a dependent, you can receive a credit on your income taxes. For 2023, the maximum tax credit is $500. To be eligible for the credit, your parent, step-parent, or in-law must not make more than $4,700. You must provide more than half of the financial support for the parent in a calendar year. So, you could qualify if you are the primary caregiver and source of financial support.
Another strategy to reduce the economic toll of caregiving is helping your loved one apply for federal and state benefits, such as Supplemental Security Income (SSI). SSI is available to people with limited income and resources who have a disability, are blind, or are 65 and older. Participants receive a monthly benefit, which helps to cover such costs as food and shelter. If your aging loved one lives with you and receives SSI, you could charge them rent, which could help cover your household expenses.
Multi-generational living can also reduce costs for your family. Consider having a loved one who lives in assisted living or alone move in with you. This could reduce your loved one’s housing costs and your loved one could contribute to your household expenses.
Finally, when strategizing how to reduce the financial weight of caregiving, it can be extremely beneficial to have an advocate on your side. Working with your elder law attorney. They can help you create a successful and manageable caregiving plan for your loved one.