Providers’ IHSS Payments Excluded From Gross Income

Update: Read the new Q&A’s the IRS posted on February 23, 2015 by clicking the following link
Certain Medicaid Waiver Payments May Be Excludable From Income

(Per IRS Notice 2014 – 7) For those families receiving IHSS as a result of a Medicaid Waiver, the income you earn by providing in-home care to a disabled person can be excluded from gross income.

The IRS has issued guidance that treats qualified Medicaid waiver payments as difficulty-of-care payments under Code Sec. 131(c) that are excludable as qualified foster care payments, and this treatment applies whether the care provider is related or unrelated to the eligible individual. Accordingly, the IRS will no longer assert the position in Program Manager Technical Advice (PMTA) 2010-007, or apply A.C. Alexander, TC Summary Opinion 2011-48, D.E. Bannon, Dec. 48,358, 99 TC No. 60, or C.G. Harper, TC Summary Opinion 2011-56, to conclude that a caregiver of a biological relative receiving qualified Medicaid waiver payments may not qualify as a foster care provider under Code Sec. 131. For purposes of this guidance, qualified Medicaid waiver payments are payments made by a state or political subdivision thereof, or an entity that is a certified Medicaid provider, under a Medicaid waiver.

The guidance, which is effective for payments received on or after January 3, 2014, does not address whether qualified Medicaid waiver payments excluded from income may be subject to tax under the Federal Insurance Contributions Act (FICA) or the Federal Unemployment Tax Act (FUTA) in certain circumstances. The guidance may be applied in tax years for which the period of limitations on claims for a credit or refund under Code Sec. 6511 has not expired.

Update: Read the new Q&A’s the IRS posted on February 23, 2015 by clicking the following link
Certain Medicaid Waiver Payments May Be Excludable From Income

TACA has a good article on this as well. Qualified Medicaid Waiver Payments Not Subject to Federal Tax in 2014

Download/View IRS Notice 2014-7 in PDF Format

More Information About Notice 2014-7

• Click here to read Notice 2014-7 Q&A on our web site.
• Click here to read Notice 2014-7 Explained by Regina Levy, CPA on our web site.
• Click here to read AOD Feigh v. Commissioner, 152 T.C. No. 15 (2019)

If you need any assistance, you are welcome to join our support group at: IHSS Advocacy Group