Under IRS Notice 2014-7, Medicaid waiver payments made to a caregiver who lives in the same home as the person they care for can be excluded from gross income. Many caregivers pay tax on this for years without ever being told.
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In January 2014 the IRS announced that it would treat certain Medicaid waiver payments as difficulty-of-care payments under Section 131 of the tax code, meaning they are excluded from your gross income rather than taxed as wages.
The notice covers payments made by a state, a political subdivision or a certified Medicaid provider 'for nonmedical support services provided under a plan of care to an eligible individual ... living in the individual care provider's home.' It has applied to payments received on or after January 3, 2014.
This is the IRS's own position, not an aggressive interpretation.
You can read it directly. The IRS guidance page (updated April 29, 2026) and Notice 2014-7 itself are both linked at the bottom of this page.
Most of the confusion we see comes from assuming that all home-care pay qualifies, or that none of it does. Neither is right, and you have to pass both gates.
Notice 2014-7 is written around Home and Community-Based Services waiver programs under Section 1915(c) of the Social Security Act. Not every Medicaid-funded home care arrangement is one. Care delivered under a state plan, a managed-care contract or a different waiver authority may sit outside the notice.
This is the first thing to establish, and it is a question about your program, not about you.
The care must be given in your home, where the care recipient also lives. The IRS defines your home as 'the place where the provider resides and regularly performs the routines of the provider's private life, such as shared meals and holidays with family.'
Living together is the test. Being related is not, because the exclusion applies regardless of your relationship to the person you care for.
There is also a size limit: the exclusion covers care for no more than 10 people aged 18 or under, or no more than 5 people aged 19 or over.
I moved into my mother's house to look after her.
Her home became your home. The IRS addresses this directly: once you live there and run your private life there, the exclusion can apply.
Generally qualifies
I care for my disabled adult son in our family home.
A parent caring for a child, an adult child caring for a parent, a spouse: the relationship does not matter. Only the shared home does.
Generally qualifies
Two of us in this house are both paid caregivers.
More than one care provider living in the same home can each exclude their own payments.
Generally qualifies
I keep my own apartment and stay over four nights a week.
If you maintain a separate residence and are only there part of the time, the payments are not excludable. This one catches a lot of people.
Does not qualify
I do respite care in other people's homes.
Respite providers are specifically outside the exclusion, because the care is not being given in the provider's own home.
Does not qualify
This is the part people miss. If your payer reported the money on a Form W-2 or a Form 1099, the IRS already has a copy of it. You cannot exclude it by not filing, and you cannot exclude it by leaving the figure off.
You file a return, report the income, and then exclude it in the right place. Done properly, the tax goes away. Done by leaving it off, it usually turns into a notice a year later.
That is the part we handle for you.
Leaving the figure off is the most common mistake we fix.
The IRS matches its copy of your W-2 or 1099 against your return. A return that simply omits the payments does not look like an exclusion, it looks like unreported income.
If these payments are your main income and you have children, excluding them can reduce your Earned Income Credit and Additional Child Tax Credit, because both are based on earned income.
The IRS lets you choose here: you can count the payments as earned income for those credits while still keeping them out of your taxable income. Which way works out better depends on your household, and it can change from year to year.
We run it both ways and file whichever leaves you better off.
Excluding the income is not automatically the better answer for every household. Because the outcome can change from year to year, it is worth running both versions each time you file.
If you reported these payments as taxable income in earlier years and they should have been excluded, those returns can usually be amended.
The window is generally three years from the date the return was filed. Once a year falls outside it, that money is gone for good.
Send us the returns and your W-2s or 1099s and we will tell you which years are worth going back for.
The three-year window does not reopen.
Once a year falls outside it, the tax you paid on those payments cannot be claimed back. If you think earlier years were reported wrongly, the oldest year is the one to look at first.
Every return is quoted up front, based on what your situation actually needs. No hourly billing, no surprises, and no work begins until you have agreed the fee. The 15-minute review that tells you whether your pay qualifies is free, and there is no obligation afterwards.
Everything on this page comes from the IRS. You do not have to take our word for any of it.
Caregiving does not leave much room for appointments, so everything here runs through an encrypted client portal: send documents when you get a quiet ten minutes, meet by video or phone when it suits you, sign electronically, and let us file in whichever of the 50 states you live in.
Upload documents through an encrypted portal built for the job. Nothing sensitive travels by email, and everything stays in one place you can log back into.
Meet your preparer by video call or phone. No travel, no waiting room, and no taking a morning off work.
Review your return and sign authorizations electronically. Nothing needs printing, scanning, or mailing.
We file in every state and work with clients living outside the United States. A different time zone is not a problem; we schedule around yours.
Prefer to sit across a desk from someone?
You can. Four walk-in offices: Bronx, Jamaica Queens, Buffalo, and Totowa NJ. Virtual is the default because it is faster for most people, not because it is the only option.
Full personal return preparation, including the credits and elections that decide whether excluding your caregiver pay actually leaves you better off.
File from home through an encrypted portal with video or phone meetings, which is how most caregivers we work with prefer to do it.
If a return that omitted these payments has already produced an IRS letter, we answer it and put the exclusion where it belongs.
Two questions decide most cases: which program pays you, and whether you live in the same home. Free, no obligation, and we will tell you plainly if the answer is no.
Information on this page summarizes IRS Notice 2014-7 and IRS guidance current at July 30, 2026. It is general information, not advice about your situation: whether payments qualify depends on the Medicaid program involved and on your living arrangements.
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