Has anyone dealt with IRS Notice 2014-7 for Medicaid Waiver Payments on their taxes?

7 You're right about IRS Notice 2014-7! It does allow qualified Medicaid waiver payments to be excluded from income when they're received for care provided to an eligible individual living in your home. Since you're caring for your adult son with a developmental disability, this likely applies to your situation. For reporting on your tax return, you actually do still need to report these payments, but then exclude them. The IRS guidance suggests reporting the full amount on Schedule 1 (Form 1040), line 8z (Other income) and writing "Notice 2014-7" next to it. Then, subtract the same amount as a negative number on the same line, resulting in zero net income from these payments. The benefit is that you won't pay income tax OR self-employment tax on these qualified payments, which sounds different from how you handled it last year.

15 After struggling with this exact same issue last year, I found a tool that completely solved it for me. Check out https://taxr.ai - they have an amazing feature that analyzes your specific Medicaid waiver documentation and tells you exactly how to handle it for tax purposes. I uploaded my waiver payment statements and program certification docs, and it immediately identified that my payments qualified under Notice 2014-7. What I loved was that it gave me step-by-step instructions for exactly how to report it on my return AND generated a custom explanation statement to attach to my return that explained everything to the IRS. Saved me hours of research and worry about doing it wrong!

3 Just wanted to update that I tried taxr.ai after seeing it mentioned here, and it was honestly a game-changer for my situation! I was really struggling with how to properly report my Medicaid waiver payments that I receive for caring for my mother. The document analysis confirmed my payments qualified under Notice 2014-7 and gave me crystal clear instructions specifically for TurboTax. It even caught that I needed to add a special explanation statement to avoid confusion with the IRS. I've already filed my return and feel 100% confident that I did it correctly this time. Wish I'd known about this last year when I overpaid on self-employment taxes!

22 If you're still having trouble getting clarity on this Notice 2014-7 issue, I found that calling the IRS directly was actually helpful - once I FINALLY got through to them. After trying for two weeks and always getting the "call volume too high" message, I discovered https://claimyr.com which got me connected to an actual IRS agent within 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent I spoke with was surprisingly knowledgeable about Medicaid waiver payments and confirmed exactly how to report them. They also advised me on whether I should amend previous years' returns (in my case, yes for the prior 3 years to get refunds on self-employment tax I shouldn't have paid). Honestly worth the effort to speak directly with someone who could address my specific situation.

19 I have to admit I was completely wrong about Claimyr. After my skeptical comment, I decided to try it anyway out of desperation since I needed clarity on these Medicaid waiver payments before filing. It actually worked perfectly! I got connected to an IRS agent in about 25 minutes, and they walked me through exactly how to handle Notice 2014-7 on my return. The agent even checked my specific state's Medicaid waiver program to confirm it qualified. The best part was learning I could file amended returns for the past three years where I incorrectly paid self-employment tax, which means I'll be getting back around $4,600! If you're dealing with this Medicaid waiver issue, definitely worth getting the official word directly from the IRS.

11 One thing nobody has mentioned about Notice 2014-7 - if you exclude these payments from income, you also can't claim them as earned income for purposes of the Earned Income Tax Credit. This might actually make some caregivers worse off if they rely on EITC, especially if they have other qualifying children. In my situation, I actually ran the numbers both ways (including as self-employment income vs. excluding under Notice 2014-7) and found that I came out ahead by continuing to report as income and paying the SE tax, because the EITC benefit was greater. Worth checking both scenarios!

5 Has anyone actually filed an amended return to get back the self-employment tax from prior years? How far back can you go? I've been paying SE tax on these payments for like 6 years now.

I went through this exact situation last year and can confirm that Notice 2014-7 is a game-changer for caregivers receiving Medicaid waiver payments. After years of paying self-employment tax on these payments (which totaled about $18,000 annually for me), I discovered I could exclude them from income entirely. The key requirements are that the payments must be for care provided to an eligible individual living in your home, and they must be received under a state Medicaid waiver program. Since you're caring for your adult son with a developmental disability in your home, this should qualify. For reporting, you'll want to move away from Schedule C entirely. Instead, report the payments on Schedule 1, line 8z as "other income" with "Notice 2014-7" noted, then subtract the same amount as a negative entry on the same line. This shows the IRS you received the payments but are properly excluding them under the notice. I also filed amended returns (Form 1040X) for the previous three years to recover the self-employment tax I had overpaid - ended up getting back over $3,800! The amended returns were processed without any issues once I included proper documentation referencing Notice 2014-7. Just make sure to keep all your Medicaid waiver program documentation and consider attaching a brief statement to your return explaining the exclusion to avoid any confusion during processing.

I'm dealing with a very similar situation and this thread has been incredibly helpful! I've been receiving Medicaid waiver payments for caring for my elderly father with dementia who lives with me. Like many of you, I've been reporting these payments as self-employment income on Schedule C and paying SE tax on about $22,000 annually. After reading through all these responses, I'm convinced I need to make the switch to excluding these payments under Notice 2014-7. My biggest concern is making sure I do this correctly - I don't want to trigger any red flags with the IRS by suddenly changing how I report this income after several years of Schedule C filing. Has anyone here worked with a tax professional specifically on this issue? I'm wondering if it's worth paying for professional help to ensure I handle both the current year exclusion and the amended returns properly. Also, for those who filed amended returns, did you do them all at once or space them out over time? Thanks again to everyone who shared their experiences - this is exactly the kind of real-world guidance that's impossible to find elsewhere!

I'm in a very similar situation - caring for my disabled adult daughter and receiving Medicaid waiver payments that I've been incorrectly reporting on Schedule C for the past 4 years. Reading through all these responses has been eye-opening! One question I haven't seen addressed: if I switch to excluding these payments under Notice 2014-7, will this affect my ability to contribute to a SEP-IRA? I've been making retirement contributions based on this "self-employment income" for years. If I exclude the Medicaid payments, I'm wondering if I'll lose that retirement savings opportunity or if there are other ways to maintain tax-advantaged retirement savings as a caregiver. Also, for those who successfully amended multiple years - did you notice any impact on state taxes? I'm in California and wondering if the state will automatically adjust based on the federal changes or if I need to file separate state amended returns. Thank you all for sharing your experiences. This community discussion has provided more clarity than hours of searching through IRS publications!