Live In Caregivers: How to Exclude Income from Taxes

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If you are paid as an attendant or provider for a person with disabilities, and you live with that person, in some cases, your income may be tax free.

Who Qualifies?

This regulation applies to most Medicaid homecare programs. These programs may be called different things in different states (Medicaid Waivers, IHSS, Medicaid Long Term Care, Home and Community Based Services).

If your salary is paid by the state and your client has hired you directly, you are likely in one of these programs.

Live In/Live Out

Live in: If you live with the person, you do not pay taxes for most medicaid homecare programs.

Live out: If you live separately, you pay taxes

Why Do I Pay No Taxes?

Your income can be excluded by a special IRS regulation called 2014-7

Booklet explaining: 2014-7 difficulty of care income tax exclusion.

Official IRS page: Medicaid Waive Tax Exclusions

What About State Taxes?

Federal taxes are always excluded. For state taxes, you may need to consult with a tax advisor or research this topic for your state. In some states, anything excluded from federal taxes are automatically excluded from state as well.

How to Get the Exclusion

Ask your payroll agency for a form to verify that you are a live in provider. They should automatically stop taking taxes from your check. The payroll agency is wherever you submit your timesheets.

Here’s an example of the form used by Public Partnerships: http://www.publicpartnerships.com/programs/Maine/pdo/documents/Difficulty%20of%20Care%20Exclusion%20Form.pdf

How to File Your Taxes

From intuit, this article explains How to Report Excluded Income on your tax forms.

Oh No! Taxes Were Already Taken Out!

If you are a live in provider and you paid taxes in the past (and now realize you should not have), it’s not too late: How to Amend Past Taxes

Child Tax Credit and Earned Income Tax Credit

If you do not pay taxes on this income, can you still get an earned income credit? And child tax credit? There is not (yet) a published IRS regulation on this topic. However, in this court ruling, it was found that tax credits can be claimed.  Please consult with your accountant on next steps.

Reader’s Tip

Your pay can still be included on taxes and excluded from ‘gross income’. This is critical because they still can affect the tax credits or other tax-related matters, such as qualifying income for contributing to a Roth IRA.

Learn More

🌸 The Self-Advocacy Guide to Disability Home Aides

🌸 Art on this page by Robin Mead and Elizabeth D’Angelo.

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