New 'Credit for Caring Act' Offers Up to $5,000 Tax Credit for Family Caregivers Starting 2025

The newly proposed Credit for Caring Act of 2025 is a major piece of legislation aimed squarely at the millions of working adults juggling a career and the demanding role of family caregiver. Essentially, this bill creates a new federal income tax credit designed to offset the significant out-of-pocket costs associated with caring for a spouse or relative with long-term needs. This isn’t a small deduction; it’s a direct credit worth up to $5,000 per year, kicking off for the 2025 tax year.

The Caregiver’s Catch: How the Credit Works

Think of this credit as a financial break for the expenses that keep you up at night. The core formula is straightforward but has a couple of critical hurdles. First, you must be an “eligible caregiver” with at least $7,500 in earned income for the year—meaning this credit is designed specifically for those balancing work and caregiving. Second, the credit only applies to qualified expenses after you’ve already spent the first $2,000. Once you pass that threshold, the government covers 30% of your remaining qualified costs, up to that $5,000 annual cap. To hit the maximum $5,000 credit, you’d need about $18,667 in qualified expenses ($18,667 - $2,000 = $16,667; 30% of $16,667 is ~$5,000).

Defining Long-Term Needs and Qualified Costs

This bill is very specific about who you can care for. The recipient must be a spouse or specific relative and, critically, a licensed health care practitioner must certify that they need long-term care for at least 180 consecutive days that overlap with the tax year. This certification focuses on functional limitations, like being unable to perform two or more Activities of Daily Living (ADLs) such as eating or dressing, or having severe cognitive impairment. For parents of very young children (under age 6) with serious health conditions, the rules are adjusted to reflect their developmental limitations.

The list of “qualified expenses” is impressively broad, recognizing the diverse costs of caregiving. It covers the usual suspects like human assistance, supervision, and assistive technology. But it also includes expenses that hit working caregivers hard: lost wages from taking unpaid time off work to provide care (if verified by your employer), travel costs related to caregiving, and even costs for respite care and support groups. If you’re driving your loved one to appointments, you can use the standard IRS medical mileage rate instead of tracking every gas receipt.

The Income Cliff and Double-Dipping Rules

Like many tax benefits, this credit starts to disappear if your income is too high. For married couples filing jointly, the phase-out begins at $150,000 in modified Adjusted Gross Income (AGI). For everyone else, it starts at $75,000. For every $1,000 you earn over that threshold, your credit is reduced by $100. This means a joint-filing couple making $190,000 would see their potential $5,000 credit reduced by $4,000, leaving them with only a $1,000 credit.

Another important rule: you can’t “double-dip.” If you use other tax benefits for certain expenses—say, a Dependent Care Flexible Spending Account (FSA) or a medical expense deduction—you must subtract those amounts from your qualified expenses before calculating this new credit. This prevents you from getting two tax breaks for the same dollar spent. Finally, the IRS wants to keep track of this, so you must include the name and Taxpayer Identification Number (TIN) of the care recipient, plus the ID of the certifying health practitioner, right on your tax return.

What to Watch Out For

While the Credit for Caring Act offers much-needed relief, implementation details will matter. One potential snag is a strange drafting error in the bill text regarding the required medical certification: it states the certification must be issued within a “3,912-month period” (which is 326 years) before the tax return due date. This is almost certainly a typo that needs fixing, as the intent is clearly to require a recent certification, not one from the 1700s. Until that’s corrected, it creates unnecessary ambiguity.

Overall, this bill is a huge step toward recognizing the economic strain on working caregivers. By covering everything from direct care to lost wages, it acknowledges that caregiving is a full-time, expensive job that deserves financial support.