Difficulty of Care payments exempt as Income
As of 2014, there is a gross income exemption for caregivers who live with the person they care for through a HCBS Medicaid waiver.
In Texas, those waivers are:
- Star+Plus Waiver
The Difficulty of Care exemption exempts income from caring for a person living in the same home from being included as Gross Income.
- If the “provider of care” lives with the “recipient of care”, then their income is NOT part of their gross income.
- This applies if the “provider of care” is related or not – the parent or a non-related person.
- This is not OPTIONAL – if this applies to you, you are legally required to exempt this income from your gross income
- If you are the paid “provider of care” for a Medicaid waiver recipient in a home you share with them, sign the Statement of Eligibility for Difficulty of Care Exemption.
- Turn in the signed statement to the Financial Management Service agency completing payroll for the recipient.
- If they are unfamiliar with this exemption, provide them with a link to the IRS Notice 2014-7 and the IRS Question + Answers to clarify how to implement this.
- File “Form 1040X, Amended U.S. Individual Income Tax Return” for 2014, 2015, 2016, if the living arrangement was the same at that time. (see Q10 & A10).
- You will adjusting your gross income as described in Q11 & A11.
- This will result in an adjustment of taxes, deductions, and credits.
- When the IRS pays the refund, they will include INTEREST!
Any tax professional should be able to read the IRS Notice 2014-7 with the IRS Question + Answers, and implement these adjustments.
It is included in 2 popular tax softwares, but they may not include the adjust mentioned in Q11 & A11 if the payroll company has not issued the correct W2 information.
- TaxAct link to information on Notice 2014-7
- TurboTax link to information on Notice 2014-7
- Not found in H&R Block tax software
- Not found in Credit Karma tax software
If you are in the Houston area, and cannot find a tax professional who is willing to read the IRS Notice and follow the directions, I can recommend Patricia at P Thorne & Associates.
Also, here are PDFs you can print to share this information:
- IRS Notice 2014-7 Difficulty of Care payment exemption
- Tax Exemptions Handout (1 page)
- Statement of Eligibility for Difficulty of Care Exemption
- IRS Q&A Certain Medicaid Waiver Payments May Be Excludable From Income
- Handout on Difficulty of Care tax exemption (multipage)