“You’re Caring for Someone at Home—Your Medicaid Payments Might Not Be Taxable”

If you’re providing in-home care for a disabled or elderly person under a state Medicaid Home and Community-Based Services (HCBS) waiver program, you may be receiving payments that are not taxable income—even if you got a Form 1099-NEC or W-2.

Thanks to IRS Notice 2014-7, these payments are treated as “difficulty of care” payments and can be excluded from gross income for federal income tax purposes.

Let’s break down who qualifies, how to report it, and what to do if you’ve been overpaying taxes for years.

✅ Who Qualifies?

You may exclude the payments if all of these are true:

  • You receive payments under a state Medicaid HCBS waiver program
  • The care recipient lives in your home (your residence—not theirs)
  • The care is provided under the recipient’s approved plan of care
  • You’re caring for someone with a disability or chronic condition

💡 Even family members qualify—parents, siblings, adult children—if they meet the above.

💡 Special Option: Include Payments for EITC

While the payments are not taxable income, you can choose to include them as earned income to qualify for:

  • Earned Income Tax Credit (EITC)
  • Additional Child Tax Credit (ACTC)

✅ But: You must include all of the payments—not just part—and only if they’d otherwise count as earned income (Q&A 9, IRS Guidance).

🔄 Can You Amend Past Returns?

Yes! If you paid tax on these payments in prior years, you can file Form 1040-X for any year within the 3-year refund window.

Include:

  • Care recipient’s name and SSN
  • Proof you both lived in the same home (utility bill, lease, etc.)
  • Documentation of the Medicaid waiver program
  • Note: “Payments excludable under Notice 2014-7”

⏳ Example: File by April 15, 2026 to claim a refund for 2022.

💬 Final Advice from Uncle Joe Tax

This isn’t a loophole—it’s a legitimate exclusion created to support caregivers like you.
You’re doing hard, essential work. You shouldn’t be taxed on payments meant to offset the “difficulty of care.”

So review your returns. Talk to your preparer. And keep more of what you’ve earned.