Is the SFC Stipend Taxable?IRS Notice 2014-7 for Georgia Caregivers

IRS Notice 2014-7 says certain Medicaid waiver payments to a caregiver who lives with the person they care for can be excluded from federal gross income. Georgia's Structured Family Caregiving (SFC) is paid through a Medicaid waiver, and SFC caregivers live with their loved one. So the notice is often relevant to SFC families.

Whether it applies to you depends on your own facts. Where you live, how you are paid and who employs you all matter. Please confirm your situation with a tax professional before you file.

This guide explains what the notice says, what it does not cover, how the IRS says to report these payments, and how to fix past returns. It is a plain-language summary, not tax advice.

IRS Notice 2014-7 at a glance

• What it is: IRS guidance on certain Medicaid Home and Community-Based Services waiver payments
• Issued: January 2014, effective for payments received on or after January 3, 2014
• How the IRS treats the payments: as "difficulty of care" payments under section 131 of the tax code
• Key condition: care is given in the caregiver's own home, where the person receiving care also lives
• Relatives: covered, whether or not the caregiver is related to the person
• What it leaves open: Social Security, Medicare and federal unemployment taxes
• Where to read it: the IRS Notice 2014-7 page on irs.gov

Who does IRS Notice 2014-7 apply to?

The notice itself describes "qualified Medicaid waiver payments." In plain terms, a payment generally fits when all of these are true:

• It comes through a state Medicaid waiver program. Georgia's Elderly and Disabled Waiver Program (EDWP), which includes SFC, is one.
• It is paid to an individual care provider. The payer can be the state or a certified Medicaid provider, such as an SFC agency.
• It is for nonmedical support under a plan of care. In SFC, that is the care plan set up for your loved one.
• The person receiving care lives in your home. The notice requires the care to happen in the caregiver's own home.
• You stay within the section 131 limit on how many people you care for. Most SFC families care for one person.

What counts as "your home"?

This is the point that trips people up. The IRS Q&A page says your home is where you live and carry on your private life. If you moved into your parent's home and have no other home, that home now counts as yours. If you work in your parent's home but keep a separate place where you live, the payments do not qualify.

Does it matter that I am related?

No. The notice applies whether or not the caregiver is related to the person receiving care. This was a change. Before 2014, the IRS had argued that people caring for relatives could not use this exclusion. Notice 2014-7 ended that position.

What does Notice 2014-7 not cover?

The notice is narrow. Several common questions fall outside it, or are answered in the IRS Q&As instead.

• Payroll taxes. The notice does not decide Social Security, Medicare or federal unemployment taxes. The IRS Q&As say that when an agency is your employer, Social Security and Medicare taxes generally still apply.
• Private payments. Money a care recipient pays from their own funds cannot be excluded.
• Respite in another home. Care given in a home where the care recipient does not live does not qualify.
• Vacation pay. The IRS says paid leave from the program is not excludable.
• State taxes. The notice is federal guidance. Ask a tax professional how your Georgia return should treat these payments.

How do I report SFC payments on my federal return?

You may still get a Form W-2 or Form 1099, even if the payments can be excluded. The Taxpayer Advocate Service points this out too. The IRS Q&As explain what to do in each case. Here is a short summary.

Line numbers change from year to year. Always follow the current IRS Q&As and form instructions, or let your tax preparer handle the entries.

Can these payments still count as earned income?

Yes, if you choose. Excluding the payments can lower your earned income. That can reduce credits such as the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit. The IRS lets you choose to include the payments in earned income for those credits.

The choice is all or nothing. You must include all of the excludable payments, not just part of them. Your tax professional can run the numbers both ways.

There is also a retirement savings angle. IRS Publication 590-A explains that people with difficulty of care payments may be able to raise their nondeductible IRA contribution limit. Ask your tax professional whether this applies to you.

Can I fix past tax returns?

Possibly. If you paid tax on qualifying payments in an earlier year, the IRS says you may file Form 1040-X. You can only do this while the refund deadline for that year is still open. IRS Tax Topic 308 explains how amended returns and refund deadlines work.

Cite Notice 2014-7 in your explanation. Be aware that removing the payments from income can change credits or deductions you claimed that year. The IRS suggests keeping these records:

• The care recipient's full name and taxpayer ID number, if available
• Proof from a third party that you and the care recipient lived together that year, such as IDs, bank statements or utility bills
• Proof that the care was given under a state Medicaid waiver program, such as a letter from the state agency or your provider

A simple way to prepare for your tax appointment

1. 1

   Gather pay records

   Bring every W-2, 1099 and pay statement you received for caregiving.

2. 2

   Show where you live

   Bring two or three documents with your shared address for the tax year.

3. 3

   Show the program

   Bring a letter or record showing your loved one gets care through EDWP or SFC.

4. 4

   Share the IRS page

   Give your preparer the link to the IRS Notice 2014-7 Q&As.

5. 5

   Ask the key questions

   Ask about earned income credits, past years and your Georgia return.

How A1-GA Healthcare Agency helps

A1-GA Healthcare Agency is a Georgia DCH-approved Medicaid home care provider in Norcross, serving metro Atlanta. We have provided in-home care since 2008 and staffed caregivers since 2004. We are an approved provider of Structured Family Caregiving.

SFC caregivers are paid by direct deposit every two weeks; the amount is set by the loved one's assessed level of care. We can answer questions about how the program works and what pay records we provide. We do not give tax advice, so please speak with a tax professional about your return.

To learn more about the program, read our guide to Structured Family Care or check your fit on our eligibility page.

• Phone: 678-446-1832
• Hours: Monday to Friday, 8am to 6pm
• Email: [email protected]
• Office: 4505 Peachtree Industrial Blvd, Suite K, Norcross, GA 30092
• Check eligibility online: A1-GA eligibility form