If you’re paid through a Medicaid waiver program like Structured Family Caregiving (SFC) and live with the person you care for, your pay is usually exempt from federal income tax under IRS Notice 2014-7. Whether you owe Social Security and Medicare tax depends on whether you’re classified as an employee (W-2 form) or an independent contractor (1099 form).
Are you thinking about enrolling? See if you qualify for Structured Family Caregiving.
If you already have a 1099 or W-2, our guide explains if your pay is tax-free, what your W-2 or 1099 affects, how tax credits and state taxes work, and where to check for changes to your benefits. Find out if caregiver pay is taxable.
Caregiver pay is generally not taxable if the IRS treats it as difficulty of care payments under IRS Notice 2014-7. If the family pays caregivers under the table, then it’s usually taxable income you must report. The household may have employer obligations. Applicable Medicaid waiver payments considered difficulty of care pay are excluded from gross income calculations.
The exclusion applies to pay received on or after January 3, 2014, and caregivers can apply it to earlier years still open for a refund that haven’t expired. Under IRS Notice 2014-7, that generally means within three years of filing or two years from when the tax was paid, whichever is later.
Family caregivers don’t have to include Medicaid waiver pay in gross federal income tax if they meet qualifications like living in the same home and IRS age requirements. IRS Notice 2014-7 provides the tax guidelines for state Medicaid Home and Community-Based waiver payments for family caregivers.
The IRS doesn’t count caregiver pay if the caregiver lives in the same home, usually where the care recipient does routines like bathing or eating. If you move into their home and don’t have another home, you may exclude pay for up to five care recipients over age 18 and up to ten under 19 under the plan of care.
IRS Notice 2014-7 usually treats Medicaid Home and Community-Based Services waiver payments under section 1915(c) of the SSA as difficulty of care pay exempt from gross income. This usually includes Structured Family Caregiving programs. Whether SFC pay is taxable depends on your state, since each has different rules. For other programs, exemptions depend on pay type and program.
Generally, caregiver income tax exclusion works the same whether you get a W-2 vs 1099 for family caregivers. Employment classification or employer (ex. agency vs. private) can affect how Social Security and Medicare taxes (FICA) apply. Federal income tax and FICA are separate taxes. Independent contractors usually don’t have FICA withheld or owe self-employment taxes, unless they run a caregiving business.
If the agency treats you like an employee, they may pull out Social Security and Medicare taxes even when the pay is excluded from your gross income tax. The employer reports excluded Medicaid waiver pay in box 12 of Form W-2 with code II. If all your pay is excludable, box 1 should be blank. If you pay FICA, then your caregiver pay should earn Social Security work credits.
If you get a 1099 or no form, then you’re typically an independent contractor and usually don’t pay FICA or earn Social Security credits. If payments qualify under Notice 2014-7, the payer doesn’t need to file 1099-NEC, Nonemployee Compensation. They should report 2026 non-exempt payments $2,000 or more (adjusted for inflation 2027). Contractors may need to pay self-employment tax.
Social Security credits directly affect retirement benefit eligibility. Many family caregivers quit their jobs and don’t earn Social Security credits. How caregiver pay is taxed affects retirement benefits and SSDI eligibility. The Social Security minimum is at least 10 years of work (40 credits), to qualify for Social Security retirement benefits. The amount is based on your 35 highest-earning years.
Social Security and self-employment taxes generally don't apply to qualified non-employee payments. With Givers, live-in family caregivers receive a daily stipend with a difficulty of care tax exemption under IRS Notice 2014-7, so caregivers don't need a 1099-NEC form. In this case, earnings don’t build up overall Social Security credits.
You can check your overall record at ssa.gov.
Keep records of all financial information, residency information and waiver paperwork and consult a tax professional before making financial decisions or filing taxes.
Family caregivers may choose if wages count as earned income for the Earned Income Tax Credit (EITC) or additional child tax credits. The IRS requires them to include the entire amount, or none at all. Caregivers can’t include only partial pay. Lower-income caregivers may find the additional child credits work in their favor instead of not reporting caregiver income taxes. Check which works better for you with free tax help like VITA.
Qualified Medicaid live-in caregiver wages may have a difficulty of care tax exemption under IRS Notice 2014-7, whether you receive a W-2, 1099 or no paperwork. You can file taxes without a W-2. If the W-2 Box 1 is blank or zero and you aren’t counting excluded pay toward earned income for tax credits, you may not need to report the W-2’s amount or attach it to the return.
If you do report, report Box 1 on Form 1040 or 1040-SR, line 1a, and box 12 Code II on line 1d. Subtract the qualifying excluded pay on Schedule 1, line 8s by listing the amount as a negative number. Your nontaxable Medicaid waiver pay may end up with negative amounts on lines 8z, 9, and 10 of Schedule 1 (Form 1040). Keep residency records to show you share a home, financial statements, and any paperwork related to the Medicaid waiver. Consult with a tax advisor when filing.
Not all state income taxes follow the federal difficulty of care tax exemption. IRS Notice 2014-7 is federal guidance, not state guidance. Each state writes its own state income tax rules. Most states pull federal adjusted gross income (AGI) from your federal tax return, so if Medicaid waiver pay is excluded, it isn't counted as state taxable income. Georgia, Ohio, Connecticut, Michigan, North Carolina, and Louisiana generally use federal AGI for state taxes.
Pennsylvania always counts Medicaid waiver payments or difficulty of care payments as taxable income. On the other hand, according to the New Jersey 2024 NJ-1040 Gross Income Tax Instructions, you shouldn't report difficulty of care payments as taxable income on the New Jersey Gross Income Tax Return, even if you get a W-2 or a 1099. You may need to include a written explanation or supporting documents verifying wages.
Massachusetts doesn’t require live-in Personal Care Attendants (PCAs) to pay state or federal income tax. That means that live-in caregiver income earned by PCAs who provide MassHealth-covered services to MassHealth participants qualifies for the difficulty of care tax exemption.
Caregiver pay may affect SSI, SNAP, and housing benefits depending on the tax and benefits rules of each program. Just because caregiver wages may be exempt from federal gross income taxes doesn’t mean that they won’t be counted for other benefits. SSI has strict income limits and your caregiver pay may affect your SSI benefits even if the IRS doesn’t count it as taxable income.
SNAP counts most income, with a few exemptions. SNAP benefits may depend on who is in your household and who receives caregiver income. Housing choice vouchers may also count nearly all sources of income when calculating housing vouchers and subsidies. For all these programs, speak with your social worker or local Office for the Aging about specific program requirements and how caregiver pay may affect benefits.
Medicaid waiver payments to a live-in caregiver are typically excluded from gross federal income under IRS Notice 2014-7. The payments count as difficulty of care pay. The IRS doesn’t treat it as taxable income. However, if you own a caregiving business or a family member pays you privately, you may owe self-employment tax. Ask a tax advisor about your case.
You may not receive a W-2 form if you aren’t classified as an employee and receive pay from a Medicaid waiver program as a live-in caregiver. Caregivers considered employees may get a W-2, and independent contractors may have a 1099 form. IRS Notice 2014-7 applies in most cases, but Social Security and Medicare (FICA) may treat caregiving income differently.
The IRS usually doesn’t consider qualified Structured Family Caregiving income taxable at the federal level if it runs through section 1915(c) Medicaid waivers. Caregivers need to live in the same home as the care recipient for wages to be considered difficulty of care pay under IRS Notice 2014-7. Each state has its own rules, so always check how pay affects caregiver income taxes.
It depends. Medicaid waiver pay for caring for a parent who lives with you is usually excluded from your federal income tax as difficulty of care payments under IRS Notice 2014-7. If you’re paid privately, have a caregiving business, or are an employee, it may affect FICA. Income tax exclusion usually applies whether you get a W-2 or 1099.
You decide if you want to count all or none of your excluded caregiver pay as earned income for the Earned Income Tax Credit and additional child tax credit. The IRS requires you to count all of it or none of it. You can’t report only part of your wages. Usually, lower-income caregivers find the benefits are worth reporting caregiver income.
It depends. If the tax year is still open, you may be able to claim back taxes for past caregiver pay. File Form 1040-X, Amended U.S. Individual Income Tax Return, if the time to claim it hasn’t expired. Generally, this is the later of three years from the filing date or two years from when the tax was paid.
Not necessarily, since income exempt from tax generally isn’t counted toward gross federal income. Whether you need to file may also depend on your age or filing status. If you have tax withheld or claim the EITC using excluded caregiver wages, you will need to file.
No, because the VA treats the monthly Primary Family Caregiver stipend in the VA Caregiver Support program as a non-taxable benefit similar to VA disability payments. The IRS treats Medicaid caregiver pay taxes differently than the VA caregiver stipend.
Fortunately, being a live-in caregiver can help with your overall taxes. Find out more about the difficulty of care rules and IRS Notice 2014-7.
See if you are qualified to get paid with our State-by-State Compensation Guide.
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