Please note that Ability360 is not a tax advisor, and we urge you to consult a tax professional about how to properly report this information when filing your taxes.
If you are a caregiver who is living with the person you provide care for, you might qualify for federal income tax relief when filing your tax return.
Difficulty of care payments are income that caregivers earn under a Medicaid Home and Community-Based Services (HCBS) Waiver program in their state. Difficulty of care payments are non-medical support payments for services provided in the caregiver’s or care recipient’s home to individuals with physical or intellectual disabilities.
Difficulty of care payments are designed to support caregivers who assist individuals with disabilities. Under IRS Notice 2014-7, difficulty of care payments can be excluded from gross federal income for tax purposes.
This means that the income earned as a caregiver may be eligible to be excluded from a federal tax return. Even if excludable from income tax, these payments are often subject to Social Security and Medicare (FICA) taxes if paid as employee wages, and FUTA may apply under household-employer rules. Talk with SSA or a benefits planner about your specific situation.
According to IRS guidelines, the following must be met to be eligible for the tax relief:
- The caregiver and the care recipient live in the same home.
- The payments are made under a qualified Medicaid waiver program.
Additionally, the caregiver does not need to be a family member of the care recipient to qualify.
For those receiving Social Security Disability (SSDI) benefits, difficulty of care payment income, in some cases, may not interfere with their eligibility or benefit amounts. This ensures that caregivers can continue receiving necessary disability benefits while managing their caregiving responsibilities.
Please refer to the Income Disregards section and drop-down menu here for more information regarding difficulty of care income exclusion for AHCCCS benefits.