Even if you’ve contributed regularly to your 401(k) plan and resisted the temptation to cash out, caring for a spouse, parent or other family member can derail your plans for a secure retirement.
A 2021 survey by AARP and the National Alliance for Caregiving found that nearly half of caregivers have experienced a financial setback, including reducing contributions to retirement savings or dipping into personal savings or retirement savings plans. Many caregivers are forced to quit their job—often during their highest-earning years—cut back their hours, or switch to another job that pays less but offers more flexibility.
Although the federal Family and Medical Leave Act requires companies with at least 50 employees to give workers up to 12 weeks of leave per year to care for a family member with a serious health condition, businesses don’t have to pay workers while they’re on leave (although some companies do). The law requires employers to give employees the same position or an equivalent one when they return, but unpaid leave still creates a financial hardship for many caregivers. Legislation to provide federal paid leave has stalled in Congress.
Increasingly, though, states are stepping into the breach. As of January 1, workers in Illinois are eligible for up to five days of paid family leave a year, while Colorado is providing up to 12 weeks in a 12-month period, bringing to 10 the number of states, along with Washington, D.C., that provide some form of paid leave for family caregivers. In some states, workers may be eligible for additional paid leave for their own medical issues.
Starting in 2026, Minnesota, Maryland and Maine will provide up to 12 weeks of family leave a year, and Delaware will provide six weeks every 24 months. New Hampshire, Vermont and Virginia recently enacted legislation that allows employers to voluntarily participate in paid family leave programs.
“What we’re seeing in state after state is that lawmakers are recognizing that all of us will be caregivers or need caregiving at some point,” says Molly Weston Williamson, a senior fellow at the Center for American Progress. States that provide mandated paid family leave are funding it with payroll taxes.
For example, Maine will impose a 1% payroll tax, which will be split between employers and employees. In Minnesota, employers will pay premiums ranging from 0.3% to 0.7% of taxable wages paid to employees, depending on participation in the program. Employers will be permitted to charge half of the premiums to employees by deducting the amount from their wages.
The amount of pay covered by state programs varies but is typically based on a percentage of weekly earnings, up to a maximum. For example, in California, which in 2004 became the first state to adopt paid family leave, caregivers can receive 60% to 70% of their weekly earnings, up to a maximum of $1,620 a week, for up to eight weeks within any 12-month period.
Navigating bureaucracy
If your state offers paid leave for caregivers and you believe you qualify, contact your state employment office and file your claim as early as possible. Processing paid leave applications “varies a lot from state to state,” Williamson says. “Some states have really good turnaround times, but every state has room to improve.”
Most states require a document signed by your family member’s health care provider attesting to the individual’s medical condition. “Typically, when we see claims denied or delayed, it’s because of documentation that is missing, incomplete or incorrect,” Williamson says. Check your state’s website for details; many provide a checklist. Once you’ve submitted your application, check in periodically with the state to make sure it’s being processed, she adds.
State tax breaks
More than three-fourths of caregivers incur out-of-pocket costs, and the average amount they spend is $7,242 a year, according to the survey from AARP and the National Alliance for Caregiving. Individuals who are caring for someone with dementia spend an average of $8,978 a year.
Depending on where you live, you may be eligible for a state tax break to offset some of your out-of-pocket caregiving costs. Oklahoma enacted legislation in 2023 that will provide a tax credit of up to $2,000—or $3,000 for individuals who are caregivers of veterans or people with dementia. Georgia, Missouri, New Jersey and North Dakota also provide tax credits for caregivers, ranging from $150 to $2,000, and lawmakers in several other states are considering similar tax breaks.
Most states have income thresholds, so not all caregivers will qualify, and New Jersey’s tax credit is limited to individuals who are caring for veterans with service-connected disabilities. For more on state and federal programs to help caregivers, go to the Caregiver Resource Center section of the AARP’s web page on caregiving.
Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
