How is the income tax-free?
The tax law allows individuals who receive payments to exclude them from gross income if all the following conditions are met:
– Payments are made pursuant to a foster care program of a State, and payments are paid by a State or political subdivision thereof, or a qualified agency;
– and payments are paid to a foster care provider for the care of a qualified foster individual in the foster care provider’s home.
Since Rumi is a service that connects two people that live in their own home on their own lease (and not in a group home or institutionalized setting), the income to the care provider is tax-free.
Learn MoreFAQs from "Certain Medicaid Waiver Payments May Be Excludable From Income" on IRS.gov website:Q2. I moved into my elderly mother's home to care for her, and I do not have a separate home where I reside. I receive payments under a state Medicaid Home and Community-Based Services waiver program for personal care and supportive home care. Am I considered to be providing care in "the provider's home" for purposes of Notice 2014-7?
A2. Yes. Under § 131, "the provider's home" means the place where the provider resides and regularly performs the routines of the provider's private life, such as shared meals and holidays with family. See Stromme v. Commissioner, 138 T.C. 213 (2012). In this situation, the mother's home became the provider's home because it is where the provider resides and regularly performs the routines of the provider's private life.
Q4. I am an individual who cares for an unrelated elderly person seven days a week in her home where I live. I receive Medicaid waiver payments for this care. I do not have another home. May I exclude these payments from gross income?
A4. Yes. In this situation, the care recipient's home is also the care provider's home, and the care provider does not have a separate home. Therefore, the Medicaid waiver payments are excludable from the care provider's gross income for the care furnished in the shared home.
Q5. I am the parent of a disabled child, and I receive state Medicaid Home and Community-Based waiver payments excludable from gross income under Notice 2014-7 for the care of my child in our home. My sister lives with me, and she also receives state Medicaid Home and Community-Based waiver payments for the care of my child. May she exclude the Medicaid waiver payments from gross income?
A5. Yes. More than one care provider living in the home with the care recipient may exclude state Medicaid Home and Community-Based waiver payments from gross income under Notice 2014-7.
Q12. I receive payments that are excludable from gross income under Notice 2014-7. Are the payments subject to social security and Medicare taxes under the Federal Insurance Contributions Act (FICA)?
A12. Maybe. Whether the payments are subject to social security and Medicare taxes depends on whether you are an employee of the agency, an employee of the individual care recipient, or an independent contractor. If the agency is your employer, the payments are subject to social security and Medicare taxes. See
Q&A 18 under Agency Questions. If the care recipient is your employer and these payments are wages for that employment, the payments are subject to social security and Medicare taxes unless one of the exceptions for domestic services applies. See
Q&A 19 under Agency Questions. If you are an independent contractor, the payments are not subject to social security and Medicare taxes. See Q&As 13 and 14.Your status as an employee or independent contractor and the identification of your employer (if you are an employee) depend on whether the agency or the care recipient has the right to direct and control how you perform your services.
Tax Topic 762, provides information and additional resources on how to determine whether you are an employee and, if so, who your employer is. If you think you are being improperly treated, you can file Form SS-8, Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding, to have the IRS determine your employment status.If you believe social security and Medicare taxes were withheld in error from your payments, such as because one of the exceptions for domestic services applied, you must first contact the agency that withheld the taxes for a refund. However, if the agency indicates an intention not to file a claim or adjust the overpaid social security and Medicare taxes, you may claim a refund of the erroneously withheld social security and Medicare taxes by filing Form 843, Claim for Refund and Request for Abatement. The requirements for filing a claim for refund of your share of social security and Medicare taxes can be found in the Instructions for Form 843.
Q14. I am a sole proprietor in a business of providing home care services. In my business, I received payments that are excludable from gross income under Notice 2014-7. However, I received a Form 1099-MISC, Miscellaneous Income, reporting these payments as income. How should I report to the Service that these payments are excludable from gross income?
A14. You should include the full amount of the payments reported to you on Form 1099-MISC as income on line 1 of Form 1040 (Schedule C). You should then report the excludable amount as an expense in Part V, and write "Notice 2014-7" next to that amount. Even though you are a sole proprietor, because the amounts are excludable from income, they are not self-employment income and are not subject to self-employment tax.
Additional Q&As discussing the application of self-employment tax to family caregivers.
**Remember to consult your tax professional with any tax questions.**
