How is the Structured Family Caregiving Program Payment Tax-Free?

One of the most common questions we get about the Structured Family Caregiving (SFC) program is: how is the payment caregivers receive tax-free? This is undoubtedly important for families considering the program, as it directly affects their financial planning. Let's break this down and explore why and how the stipend caregivers receive through the program is exempt from taxation.

Understanding the Structured Family Caregiving program

The SFC program is designed to support Medicaid recipients who need consistent care to remain safely in their homes. Instead of relying on institutional care (like a nursing facility or intermediate care facility), the program allows a family member to become the designated caregiver. This allows the care recipient to stay in a comfortable and familiar environment and compensates the family member for their work.

Caregivers in the program receive a stipend to help offset the time, effort, and financial sacrifices they make to provide care. The payment is meant to support the caregiver's role and ensure they can focus on providing the best possible care without undue financial stress.

But why is this payment tax-free?

The tax-free status: IRS notice 2014-7

The tax-free status of the SFC stipend stems from IRS Notice 2014-7, which clarifies that certain payments received under state Medicaid Home and Community-Based Services (HCBS) waiver programs are considered "difficulty of care payments." As such, they are excluded from gross income for federal tax purposes.

The Structured Family Caregiving program qualifies under these HCBS waiver guidelines, making the caregiver stipend exempt from federal income tax.

Key points of IRS Notice 2014-7:

• Difficulty of care payments: These are payments made for providing care to a person with physical, mental, or emotional conditions that require a high level of assistance. The IRS recognizes that these payments are not merely compensation for services but also a way to acknowledge the unique challenges faced by caregivers.
• In-home care: The tax exemption applies when the care is provided in the caregiver's home. This aligns with the SFC program's model, as the Medicaid recipient must live with the caregiver for the program's duration.

Other programs that qualify for difficulty of care payments

The IRS allows payments from certain Medicaid Home- and Community-Based Services (HCBS) programs to qualify as difficulty of care payments, provided they meet specific criteria. While "Structured Family Caregiving" is one such program, other programs may also qualify.

Here are examples of programs and services that often qualify:

• Medicaid waiver programs: Programs like the Home and Community-Based Services Waivers or the 1915(i) State Plan HCBS provide support for disabled individuals, older adults, or those needing long-term care
• Adult Foster Care (AFC): Foster care payments, made when the provider of care and the care recipient live in the same home, can qualify if Medicaid covers the foster care program.
• Personal Care Services: Medicaid-funded personal care services provided in the caregiver's shared home with the care recipient may qualify.
• Consumer-Directed (Self-Directed) Care Programs: These programs, also known as participant-directed services or cash & counseling programs, allow care recipients to hire family members or other caregivers to provide care.

Key criteria for qualification

• The program must be Medicaid-funded.
• The care must be provided to allow the eligible individual to remain in a home or community setting.
• The caregiver and recipient must live in the same household.

How to report difficulty of care payments

Reporting difficulty of care payments, which may qualify for exclusion from gross income under IRS Notice 2014-7, depends on whether you are required to file a tax return and whether the waiver payments meet the criteria for exclusion.

1. Determine eligibility for exclusion

If the following conditions are met, then the waiver payments are excludable from gross income:

• Payments must come from a Medicaid HCBS program.
• The caregiver and the care recipient must live in the same household.
• The services provided should enable the care recipient to remain in the home or community.

2. How waiver payments are reported by payers

You may still receive a Form W-2 (if employed by an agency) or a Form 1099 (if an independent contractor, as is the case with Structured Family Caregiving), even if the payments are excludable. These forms reflect the payments but do not affect your eligibility for the exclusion.

3. Reporting for federal income taxes

If the payments are excludable:

• Do not include the waiver payments in gross income on your tax return.
• You can disregard the amounts reported on Form W-2 or Form 1099 if they pertain solely to the excludable payments.

If only part of the payments are excludable:

• Report the non-excludable portion as income.
• Use the excludable portion as a reduction.

4. Completing your tax return

• Form W-2 Recipients: If payments reported on a W-2 are entirely excludable, no further action is needed; do not enter them on your tax return.
• Form 1099 Recipients: If you receive a 1099 and all payments are excludable:
  • Report the waiver payments as income on Schedule 1 (Form 1040), Line 8z.
  • Write "Notice 2014-7 Excluded Income" next to the line and subtract the excludable amount.‍
• Self-employment tax: If waiver payments are excludable, they are also not subject to self-employment tax.

5. Record-keeping

• Keep documentation showing that the waiver payments qualify under IRS Notice 2014-7, such as proof of Medicaid program participation and a shared residence.

The Givers app helps you keep a record of onboarding documentation, pay stubs, and all communications with Givers as your SFC provider agency.

Frequently asked questions

Q: What qualifies as providing care in the provider's home for federal income tax purposes?

• Providing care in "the provider's home" means the care recipient lives with the caregiver in the caregiver's primary residence (or vice versa).

Q: Can Medicaid waiver payments be excluded if the care recipient does not live in the caregiver's home?

• No. To qualify for tax exclusion under IRS Notice 2014-7, the care must be provided in the caregiver's home where the care recipient also resides.

Q: Are Social Security and Medicare taxes applicable to these payments?‍

• It depends on whether the caregiver is classified as an employee, an independent contractor, or self-employed under the HCBS waiver. Under the Structured Family Caregiving (SFC) program, the caregiver is typically considered an independent contractor, which means payments are generally not subject to Social Security and Medicare taxes. Caregivers should consult with a tax professional to determine their specific tax obligations.

Q: Are there other types of payments related to caregiving that cannot be excluded?

• Yes. Payments such as vacation pay or compensation for services provided outside the caregiver's home are not excludable under IRS Notice 2014-7.

A note from Givers

The tax-free status of payments in the Structured Family Caregiving program is a testament to the program's alignment with federal tax policies to make care payments excludable. By leveraging IRS Notice 2014-7, the program ensures that caregivers are supported financially and logistically so they can focus on providing high-quality care to their loved ones.

Check your SFC eligibility at joingivers.com/apply >>