Need help filing taxes with Medicaid waiver payments as an in-home care provider

The payments you're referring to are likely Medicaid Home and Community-Based Services (HCBS) waiver payments. You're correct that these can be excluded from income when certain requirements are met. For these payments to be excluded from your income, the care recipient must be living in your home, and you must be providing care that would otherwise require institutionalization. It sounds like you meet these criteria based on your description. When filing your taxes, you don't need to report the exempt Medicaid waiver payments as income on your tax return. However, you should keep documentation of these payments in case of any questions from the IRS. Your W-2 income from the grocery store would be reported normally. If you included these exempt payments as income last year, you might be able to file an amended return (Form 1040-X) for that tax year to claim a refund of any overpaid taxes. You generally have up to three years from the date you filed your original return to file an amendment.

I went through something similar last year with Medicaid waiver payments for caring for my brother. I spent HOURS trying to figure it out and kept getting conflicting advice until I found taxr.ai (https://taxr.ai). They have this tool that analyzes your tax situation and relevant IRS notices. I uploaded my previous year's tax return and the Medicaid waiver documentation, and they instantly identified that I had incorrectly reported the waiver payments as taxable income. Their system showed me exactly what forms I needed and how to properly document the exemption. Saved me about $4,200 in taxes I shouldn't have been paying! What I really appreciated was that they explained everything in plain English instead of tax jargon. They even helped me understand which documentation I needed to keep in case of an audit.

Ok I have to admit I was wrong about taxr.ai. After posting my skeptical comment I decided to try it myself since I was having issues with some 1099-MISC income from a class action settlement. Went to https://taxr.ai and uploaded my documents. The system immediately identified the specific tax code that applied to my settlement income and showed me exactly how to report it. It even flagged that part of my settlement was for medical expenses which qualified for different tax treatment. I was genuinely surprised at how detailed and specific the guidance was - it wasn't generic advice but completely tailored to my situation. Ended up saving me about $860 in taxes. Just wanted to follow up since I was so skeptical in my earlier comment!

I see several people mentioning trying to call the IRS about these Medicaid waiver payment questions. Good luck with that! I spent THREE WEEKS trying to reach someone at the IRS about this exact issue last year. Either got disconnected or was on hold for hours only to be told I needed a different department. I finally used Claimyr (https://claimyr.com) after seeing it mentioned in another tax forum. They somehow got me connected to an IRS agent in about 20 minutes. You can see how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent was actually super helpful and confirmed that my Medicaid waiver payments for caring for my aunt were exempt from federal income tax. She even emailed me the specific IRS notice that covered my situation. Completely worth it after all those failed attempts calling on my own.

I have to eat my words about Claimyr. After posting my skeptical comment, I struggled for another week trying to reach the IRS about my Medicaid waiver payment question. Got disconnected four times after waiting over an hour each time. Finally gave in and tried Claimyr. Within 45 minutes, I was talking to an actual IRS representative who walked me through exactly how to handle the exempt income. She even helped me understand how to document everything in case of an audit. The agent confirmed that I could file amended returns for the past three years where I incorrectly reported the payments as taxable income. Looks like I'll be getting back around $7,800 in taxes I shouldn't have paid. Wish I hadn't been so stubborn about trying to call on my own for weeks!

Just a heads up, the specific IRS Notice that covers the Medicaid waiver payment exemption is Notice 2014-7. It might be helpful to include this notice number when filing your taxes or if you're amending previous returns. I attached a copy of it when I filed my amended returns and got my refunds without any issues.

Has anyone here talked to a tax preparer about this? I went to H&R Block and the person there had NO IDEA about Medicaid waiver payment exemptions. They kept insisting I needed to report it as self-employment income and pay taxes on it! I'm afraid of filing incorrectly but also don't want to pay taxes I don't owe.

One thing nobody has mentioned - if you're excluding Medicaid waiver payments from your income, you might need to adjust your Earned Income Credit calculation if you were claiming that. Since the payments don't count as earned income when they're excluded, it could affect your EIC amount. Something to keep in mind if you're filing amended returns.

This is such a helpful thread! I'm in a similar situation but with a twist - I provide care for my elderly father who receives Medicaid waiver payments, but he doesn't live with me full-time. He stays at my house about 4-5 days per week and goes to my sister's the other days. Does anyone know if the "living in your home" requirement from Notice 2014-7 means they have to be there 100% of the time? Or would this split arrangement still qualify for the exemption since my home is his primary residence? I've been reporting these payments as taxable income but I'm wondering if I've been doing it wrong. Also want to echo what others have said about the big tax prep chains - went to two different locations and got completely different advice from each one. Definitely going to look for a CPA who specializes in this area like @PrinceJoe suggested.