New Homecare Act Allows Tax-Free HSA Funds for Long-Term Elder Care

The Homecare for Seniors Act is making a significant change to how people can pay for in-home care. If you have a Health Savings Account (HSA), this bill expands what counts as a qualified medical expense, allowing you to use those tax-free dollars to pay for specific long-term home care services. This change applies to tax years starting after the law is enacted, meaning your HSA funds could soon cover care that previously required after-tax dollars.

The New Definition of 'Qualified Home Care'

Before this bill, using HSA money was limited to standard medical expenses. Now, the law introduces the term “qualified home care” as an eligible expense (Sec. 2). What exactly is that? It’s defined as contracted help with at least three of seven specific activities of daily living: eating, toileting, moving/transferring, bathing, dressing, managing continence, and medication adherence. Think of it this way: if your parent needs help getting dressed, transferring from bed to a chair, and remembering to take their meds, that service contract now qualifies.

The Fine Print: Who Can Provide the Care?

This isn't a free-for-all. To qualify for the HSA funding, the care provider must be licensed by the state to do this work, or the services must be delivered according to all state rules (Sec. 2). This is a good sign for quality control, ensuring the care being paid for is professional and regulated. However, there’s a major exclusion that hits close to home for many families: you cannot use your HSA funds for care provided by a related party. If your adult child or spouse provides the care, even if they are a licensed professional, you can't tap into your HSA for that contract, based on existing tax code rules (Sec. 267(b) or 707(b)).

Real-World Impact: Financial Flexibility vs. Family Care

For the busy professional saving in their HSA, this is a huge win for financial planning. It means that the money you’ve been setting aside for future medical expenses can now be used, tax-free, to keep an aging parent or relative in their home longer, potentially delaying or avoiding much more expensive institutional care. For example, a $15,000 annual home care bill paid with HSA funds saves you significant money compared to paying it with money that’s already been taxed.

However, the exclusion of family care is a practical hurdle for many. Lots of families rely on a primary caregiver—often a sibling or spouse—who leaves the workforce to provide that essential daily help. Because the bill explicitly excludes related parties, those families cannot use this new tax benefit to compensate their family caregiver, even if the care meets all the “three activities” criteria. This means the benefit primarily flows to those who can afford to hire an external, licensed agency. To make sure people actually know about this major change, the bill mandates that the Departments of Health and Human Services and the Treasury run a public awareness campaign (Sec. 2), which is a smart move given how many people rely on HSAs for future planning.