Caregiver pay through qualifying Structured Family Caregiving is generally excluded from federal taxable income under IRS Notice 2014-7. Social Security Income (SSI) uses different SSA income-counting rules, so tax exclusion alone doesn’t determine if caregiver income affects SSI. Individual circumstances affect how SSA classifies pay. Speak with a qualified benefits planner about your personal situation before relying on an estimate.
Our caregiver guide will give you the SSI-specific answers you need most before enrolling since SSI is an important benefit that affects many paid SFC caregivers. This article covers SSI, not Social Security Disability Insurance (SSDI).
Medicaid caregiver wages through Structured Family Caregiving usually don’t affect SSI and are considered a tax-free Difficulty of Care payment under IRS Notice 2014-7. Whether or not caregiver income affects SSI depends on how it’s treated under the SSI benefits rules. So you might be wondering, “Will caregiver pay affect my SSI?”
For example, if you are paid privately or don’t live with the person you care for, your caregiver wages may affect your SSI. If you are paid through a qualified Medicaid waiver program and live with your care recipient, your caregiver wages may not count towards SSI. Eligibility and requirements are different in each state. Ask a tax planner how your caregiver stipend may impact your SSI.
SSI generally excludes the first $20 of unearned income and the first $60 of irregular quarterly income. Only the unused portion of the $20 is applied to your earned income. Other unearned income exclusions include HUD rent subsidies, child support and SNAP.
SSA generally exempts the first $65 of earned income after any available general income exclusion. SSA usually exempts the first $30 of earned irregular income per quarter. That means if you earned $500 in SFC caregiving wages, SSA may take out any general income exclusion, then apply the $1-for-$2 reduction below.
After applicable general income exclusions, the SSA counts one-half of the remaining earned income. This doesn’t mean that your SSI is reduced by $1 for every $2 of gross caregiver income. The calculations start after applying any relevant exclusions. See the example situation below.
Note: The example below is a conditional illustration and not a prediction of how SSA will classify every SFC payment.
In this example, SSA counts the Medicaid caregiver pay as earned income. There’s no other income using the $20 exclusion. No other work incentives or exclusions apply. For this illustration:
1. Start with gross Structured Family Caregiving pay for the month.
2. Subtract the $20 general income exclusion.
3. Subtract the $65 earned income exclusion.
4. Divide the remaining amount by 2 (the $1-for-$2 reduction).
5. Subtract that result from your normal SSI payment to get the adjusted benefit.
Common scenario (illustrative): Deniece watches her great-uncle part-time and is paid $900 a month through a qualified Medicaid Structured Family Caregiving program. She lives in her great-uncle’s home and usually helps with cooking, light housekeeping, and grocery shopping throughout the week. She receives $800 SSI. This is her only income.
Your actual result might vary from this example. Remember that being excluded from federal taxable income under IRS Notice 2014-7 doesn’t automatically determine how SSI treats the caregiver payment. Any stipend or change in income still has to be reported to the SSA to avoid penalties.
Difficulty of Care payments are caregiver payments through a qualifying Medicaid Home and Community-Based Services waiver program for care in the caregiver’s home. With IRS Notice 2014-7:
Note: This refers only to the IRS tax treatment of caregiver pay and SSI benefits. Qualifying Difficulty of Care payments might be excluded from federal gross income but don’t independently determine how SSA counts the payment for SSI. As always, talk with a tax professional about your specific situation.
IRS tax treatment and SSI benefit calculations are separate rules, even if we are talking about the same caregiver payments.
The IRS determines if payment is included in your federal gross taxable income. If you meet the IRS Notice 2014-7 requirements for the Difficulty of Care exclusion: live in the same home as the care recipient and payment is under a qualified Medicaid waiver program. If you satisfy both requirements, the IRS will most likely exclude your caregiver income as Difficulty of Care payments for SSI federal gross income calculations.
For example, if you earn a $400 SFC payment, it may be excluded entirely from federal gross income if you live with your care recipient and are paid through a qualified Medicaid program.
The SSA may count some or all of your Medicaid caregiver pay toward your SSI earned income calculation. Tax-free pay isn’t automatically excluded.
SSI uses different SSA income-counting rules to decide if caregiver pay affects SSI. SSI usually doesn’t count the first $20 of any unearned income and the first $65 of earned income before using the $1-for-$2 benefit reduction.
If you earn $400 in SFC caregiver wages, then the SSA may subtract $168.50 from SSI. That’s the $20 and $65 deduction applied then divided in half. Other wages like royalties or self-employment also affect your final SSI. You may have other unearned income that is excluded. SNAP, Housing, tax refunds, need-based state assistance and Urban Development rent subsidies generally aren’t counted by SSA.
According to IRS Notice 2014-7, to receive the earned income exclusion, a caregiver must live in the same home as the care recipient and caregiver income must come through a qualifying Medicaid waiver program. Care must also keep the Medicaid participant from being sent to a nursing home or institution.
Factors like the specific Medicaid program, living arrangements and payment structure can affect exclusion. Always speak with a tax professional about your specific situation.
Medicaid-funded Structured Family Caregiving (SFC) refers to an eligible live-in caregiver who receives a daily stipend, training, and ongoing support through a qualified Medicaid program. Eligibility, caregiver restrictions, and payment amounts are different in each state. Connecticut’s program is called the Adult Family Living (AFL) program, and pays primary in-home caregivers including friends and family members.
Your SFC stipend’s federal tax treatment doesn’t automatically determine SSI treatment. If SSA counts the SFC payment as earned income, then the earned income calculations above might apply. However, outcomes are affected by your benefit record, payment structure, and other individual factors. So your personal calculations may be different depending on how SSA classifies your caregiver income.
Generally no. Under IRS Notice 2014-7, tax-free Difficulty of Care payments may be excluded from federal gross income. DOC payments are for non-medical services you provide in the home through a Medicaid Home and Community-Based Services (HCBS) Waiver program. The program is designed for caregivers of people with disabilities.
In most cases, wages from Structured Family Caregiving won’t impact your SSI benefits if you meet all state requirements. Difficulty of Care wages aren’t earned income for SSI purposes. You must live with the care recipient and participate in a qualified Medicaid waiver program.
Caregiving must keep them in their home so they avoid moving to a nursing facility or other institution. Will your caregiver income reduce SSI? Always speak with a tax planner about your specific situation.
Yes. You need to report your caregiver income to SSA to avoid dealing with a costly audit. SSA reviews your employer’s tax filings, which include your caregiver wages. You may face a steep retroactive repayment if you fail to report your income, even if you think it’s a small stipend.
Unlike SSDI, your SSI doesn’t depend on your work history. SSI provides financial help to pay for housing, food, and other basics if you have a disability or are over 65. SSDI benefits depend on whether you paid Social Security taxes through your job, your disability, and your age. You can receive both SSDI and SSI at the same time.
Caregiver pay and SSI eligibility rules depend on your individual case. Always verify your specific situation with the SSA.
More helpful resources:
IRS – Notice 2014-7 (Difficulty of Care Payments)
