Understanding 2014-7 Notice on W2 for Family Caregiver Pay - Do I need to report exempt income?

What you're seeing is related to the IRS Notice 2014-7, which provides guidance on certain Medicaid waiver payments made to caregivers. These payments can be excluded from income for federal tax purposes when you're caring for a qualified family member in your home. The zeros in boxes 1 and 2 are correct - the agency is indicating that this income isn't subject to federal income tax. Box 14 is just informational, showing the total paid to you and referencing the notice that makes it tax-exempt. Even though this income is exempt, you should still report it on your tax return. The best practice is to include it on the "Other Income" line on Schedule 1 and then subtract the same amount with a note "Notice 2014-7" to show it's exempt. This way, there's a clear record that you're aware of the income but are properly excluding it based on IRS guidance. Not reporting it at all could potentially raise questions if the IRS cross-references information from the agency. Better to show you're excluding it properly than to have it appear you're hiding income.

I went through something really similar last year with my mom's care and was totally confused by the 2014-7 thing on my W2. After hours of research and getting nowhere, I tried this service called taxr.ai (https://taxr.ai) that specifically helps with confusing tax documents. I uploaded my weird W2 with all those zeros and the cryptic 2014-7 code, and they explained everything - turns out it's a specific exemption for family caregivers under Medicaid waiver programs. They even showed me exactly how to report it on my return to avoid any problems. Basically, you report it as "Other income" on Schedule 1, then subtract it on the same form with a note referencing Notice 2014-7. What I really liked was that they looked at my specific situation instead of giving generic advice. They confirmed I was eligible for the exemption since my mom lives with me and explained how the Medicaid waiver program works with taxes.

Just wanted to update that I tried taxr.ai after seeing the recommendation here. My situation was almost identical - getting paid as a caregiver for my aunt who lives with me, and a weird W2 with zeros and that 2014-7 code. The service was super helpful! They confirmed that my payments are indeed exempt under the Medicaid waiver program and showed me exactly where to report it on my tax forms. They even pointed out that I needed to include a specific statement with my tax return referencing Notice 2014-7, which I had no idea about. What I found most valuable was the peace of mind knowing I'm handling this correctly. The last thing I want is to get a notice from the IRS because I misunderstood how to report exempt income. Definitely worth it for unusual tax situations like this!

If you're still trying to resolve this and getting frustrated with the IRS not answering their phones (like I was), check out Claimyr (https://claimyr.com). They have this service that gets you through to an actual IRS agent instead of waiting on hold forever. You can see how it works here: https://youtu.be/_kiP6q8DX5c I was going crazy trying to get clarification about my caregiver income and the 2014-7 notice. Called the IRS multiple times and never got through. Used Claimyr and got connected to an agent in about 20 minutes who confirmed exactly how to report the exempt income and explained what documentation I should keep. The agent was actually really helpful and walked me through how to properly note the exemption on my return. Saved me hours of frustration and uncertainty.

I have to admit I was completely wrong about Claimyr. After my skeptical comment, I was still struggling to get answers about my caregiver payments and that 2014-7 notice, so I decided to try it as a last resort. I was connected to an IRS representative in about 25 minutes - after spending literally weeks trying to get through on my own. The agent confirmed that my Medicaid waiver payments are excludable from income under Notice 2014-7 and gave me clear instructions for my tax return. The best part was being able to ask follow-up questions and get immediate answers from an actual IRS employee. They explained that I should report the income on Schedule 1 as "Other Income" and then subtract it with a notation about Notice 2014-7. They also confirmed I need to keep documentation showing I qualify for the exemption. I'm honestly embarrassed about my initial skepticism - this service saved me so much time and stress.

Just to add another perspective - I've been a caregiver for my sister for 3 years now, and the 2014-7 exemption has been a huge help. Make sure you're actually eligible though! The key requirements are: 1. The payments must come through a Medicaid Home and Community-Based Services waiver program 2. The care recipient must live in your home (not you going to their home) 3. The care recipient must be related to you or someone you would be able to claim as a dependent Also, remember this only exempts you from federal income tax. Depending on your state, you might still owe state income tax on these payments. My state doesn't recognize the federal exemption so I still have to pay state tax on my caregiver income.

One thing nobody's mentioned - make sure you keep REALLY good records about your caregiving arrangement. My cousin got audited last year specifically about her 2014-7 exempt income, and the IRS wanted to see: - Documentation from the agency showing it's a Medicaid waiver program - Proof that the person you're caring for lives with you (same address) - Medical documentation showing the family member requires care - Your certification or training as a caregiver (if applicable) - A log of care hours provided The IRS is definitely looking at these exemptions more carefully now. Even though the income is exempt, they want to make sure people actually qualify for the exemption.

I'd recommend keeping those records for at least 7 years, especially for something as specific as the 2014-7 exemption. While the IRS generally has 3 years to audit most returns, they have 6 years if they suspect you've understated income by more than 25%. Since caregiver income exemptions are relatively uncommon and the IRS is scrutinizing them more closely, having documentation readily available for the extended period gives you better protection. Also, state tax agencies might have different audit timelines than the federal IRS, so the longer retention period covers you there too. Digital copies work fine - just scan everything and keep it organized by tax year. It's much easier than trying to recreate documentation years later if questions arise.