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Several tax-related items have come to my attention that are relevant to parents working as paid caregivers through a Medicaid waiver program.
Difficulty of Care payments exempt as Income
The first applies to a gross income exemption for caregivers who live with the person they care for through the Medicaid waiver. The Difficulty of Care exemption exempts income from caring for a person living in the same home from being included as Gross Income.
Highlights:
- If the "provider of care" lives with the recipient of care, then their income is NOT part of their gross income.
- This applies if the "provider of care" is the parent or a non-related person.
- This is not OPTIONAL - if this applies to you, you are legally required to exempt this income from your gross income
Action Steps:
- If you are the paid “provider of care” for a Medicaid waiver recipient in your home, sign the “Statement of Eligibility for “Difficulty of Care” Exemption”.
- Turn in the signed statement to the Financial Management Service agency completing payroll for the recipient.
- File “Form 1040X, Amended U.S. Individual Income Tax Return” for 2014 and 2015, if the living arrangement was the same at that time. (see Q10 & A10).
- You will adjusting your gross income as described in Q11 & A11.
- This will result in an adjustment of taxes, deductions, and credits.
Links to pertinent documents, and relevant excerpts
Household Employment Tax Exemption
The second applies to the Household Employee Tax Exemption for employees based on family relationship to the employer. This exemption applies to parents working for their children, and exempts them from paying federal unemployment taxes (FUTA), and Social Security and Medicare taxes (FICA).
Highlights:
- Parents employed by their child are exempt from FUTA taxes, possibly SUTA taxes, and FICA (Social Security and Medicare tax).
- This only applies to parents working for their child as part of Consumer-Directed Services. (reference Q12 & A12 above)
- The Medicaid waiver recipient becomes the employer for CDS after they turn 18, if they maintain their own guardianship.
- This does NOT apply if the parents work for their child through the Direct Service Agency, since the agency, not the child, is then the employer.
- This is not OPTIONAL - if this applies to you, you are legally required to exempt from paying the applicable taxes.
Action Steps:
- If you are a parent working for your child under the CDS option, fill out the “Fiscal/Employer Agent Household Employee Tax Exemption Information” form
- Turn in the signed form to the Financial Management Service agency completing payroll for the recipient.
- Request the FMSA (payroll agency for recipient) refund taxes for 2014, 2015, and 2016, and refer them to instructions for “Form 941-X, ” to receive a refund of overpayment. (see Q19 & A19).
Links to pertinent documents, and relevant excerpts
In order to further explain this, and provide the support, here is a link to this information + additional documentation.
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