Do you get paid by your state to look after your child who has a disability? You may be receiving what are called Medicaid waiver payments. Depending on where you live it may be called something different.
When it comes to reporting these payments on your tax return you may have heard some confusing information. So let's look at it bit by bit.
What are Medicaid waiver payments
Medicaid waiver payments are earnings from the job of taking care of someone who has trouble taking care of themselves. These individuals will be receiving their health care from Medicaid due to their chronic condition or their status as a person with a disability. Medicaid will pay someone like a parent to assist in the care of this individual rather than using a service so that the individual can receive care in their own home.
If you receive Medicaid waiver payments, you might have received either a W-2 or 1099-MISC tax form with the employer or payer showing your child’s name or the name of the person you are caring for..
Are Medicaid waiver payments taxable?
The short answer is ‘maybe’.
Medicaid waiver payments are NOT taxable when:
- Payments are made under a state Medicaid Home and Community-Based Services waiver program (such as from IHSS in California and MDHHS in Michigan)
- It allows the cared for individual to receive the care in their home
- You, as the person providing care, also live in the home and do not have a separate home from the cared for individual
So what is an example of when Medicaid waiver payments are not taxable?
Let’s say you are the mother of a disabled child who receives payments from the state Medicaid services program to care for your child and you live full-time with your child. In this case you may exclude the Medicaid Waiver Payments from your income on your taxes.
If you do not meet those requirements, the Medicaid Waiver Payments are taxed as either wages or self-employment.
Do Medicaid waiver payments count as Earned Income for tax credits?
The great thing about being able to exclude Medicaid Waiver Payments is that while you don’t pay taxes on this income, you CAN still include them as Earned Income for purposes of the Earned Income Credit and the Child Tax Credit. This means that your income from caring for your kid does not get taxed but you still get to claim the tax credits if you are otherwise eligible.
If you have additional questions, the IRS has a Q&A page related to just Medicaid waiver payments here.