IRS Notice 2014-7 — Difficulty-of-Care Income Exclusion

What it offers

IRS Notice 2014-7 treats certain payments to individual care providers under a state Medicaid HCBS waiver program described in Social Security Act section 1915(c) as difficulty-of-care payments excludable from federal gross income under IRC section 131 when the care is provided in the care provider home and the care recipient also lives there under the plan of care. The exclusion can apply to more than one care provider in the shared home. It does not apply when the provider has a separate home and only works or sleeps in the care recipient home, or to respite care where the care recipient does not live in the provider home. IRS Q&A says taxpayers may choose to include otherwise excludable payments in earned income for EITC or ACTC if beneficial. For W-2 reporting, IRS says nontaxable Medicaid waiver payments may be reported in box 12 with Code II. Do not treat this as a blanket FICA exclusion: IRS says Social Security and Medicare tax treatment depends on whether the caregiver is employed by an agency, by the care recipient, or is an independent contractor.

Questions that decide eligibility

GiveCare prepares the questions; the program makes the decision. Bring these to the call or the application:

1. 01

   Does the VA disability rating meet the program’s minimum (our record lists null%)?

2. 02

   Do the work hours meet the minimum (our record lists null hours)?

3. 03

   Which tax year does this apply to, and what form claims it?

4. 04

   Does your employer already offer this, and have they told staff?

   Some credits are claimed by the employer, not by you — asking is the move.