IRS Notice 2014-7: Tax-Free Pay for Personal Care Services Through Medicaid Waivers

Did you know that certain payments you receive for providing personal care services under a Medicaid waiver can be tax-free at the federal level? According to IRS Notice 2014-7, if you're providing essential care for a family member or another individual, you may not need to report that income on your federal taxes! This can be a huge benefit for caregivers, but there are important things you need to know.

What qualifies as personal care services?

Assisting with daily tasks like eating, bathing, dressing, toileting, transferring, and personal hygiene
Helping with light housework, laundry, meal preparation, transportation, and grocery shopping

Managing tasks like medication, using the phone, and money management

Possible Downside:

While receiving tax-free pay can save you money now, not paying taxes means you aren’t earning credits for Social Security. This could affect:

Your retirement benefits
Your child’s Disabled Adult Child Benefit
Your ability to claim Social Security Disability in the future

💡 Remember, you earn credits based on the income you report and pay taxes on. This means if you exclude this income, it won't count toward your Social Security credits, which are crucial for qualifying for retirement or disability benefits.

Resources You Need:

IRS Notice 2014-7: Certain Medicaid Waiver Payments May Be Excludable From Income - https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income

IRS Publication 525: Taxable and Nontaxable Income - https://www.irs.gov/pub/irs-pdf/p525.pdf

Preventing Medicaid Improper Payments for Personal Care Services - https://www.cms.gov/Medicare-Medicaid-Coordination/Fraud-Prevention/Medicaid-Integrity-Education/Downloads/pcs-prevent-improperpayment-factsheet.pdf

Taxpayer Advocate Service: "Certain Medicaid Waiver Payments May Be Excludable From Income" - https://www.taxpayeradvocate.irs.gov/news/tax-tips/taxtips-certain-medicaid-waiver-payments-may-be-excludable-from-income/2020/06/

👇 Comment below: Have you received payments under a Medicaid waiver, and will you be excluding them from your income? Let us know your thoughts!

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