Yes, a family member can get paid as a caregiver in Tennessee. The main route is TennCare CHOICES Consumer Direction, which lets the person receiving care hire relatives, friends, or neighbors and pays them through the Medicaid program. Veterans have separate options through the U.S. Department of Veterans Affairs. Each pathway has its own eligibility rules, pay structure, and tax treatment, and a few planning steps up front can protect both the caregiver and the care recipient down the road.
TennCare CHOICES Consumer Direction
TennCare CHOICES is Tennessee’s Medicaid program for long-term services and supports. It serves adults 65 and older and adults 21 and older with physical disabilities who need help with daily activities like bathing, dressing, eating, or moving around the house. CHOICES covers nursing facility care, but it also funds Home and Community Based Services so people can stay at home instead.1TennCare. CHOICES
The part that pays family is called Consumer Direction. The care recipient (or a representative acting for them) chooses who provides care, sets the schedule, and directs how the work gets done. Family members, friends, and neighbors can all be hired, with some limits depending on the relationship and living arrangement.1TennCare. CHOICES
To qualify, the care recipient has to meet both the financial rules for TennCare Medicaid and functional criteria showing a real need for long-term care help. An assessment sets the level of care and the budget available for services.2State of Tennessee. TennCare Eligibility Reference Guide
Tennessee also allows legal guardians to be paid in certain situations, though the state has to put safeguards in place when the same person is directing the care plan and providing the care.3Medicaid. Leveraging Family Caregivers for Personal Care Services in 1915(c) Waiver Programs
VA Programs If You Care for a Veteran
If your family member is a veteran, several VA programs either pay the caregiver directly or give the veteran money to compensate one.
Program of Comprehensive Assistance for Family Caregivers
PCAFC pays a monthly stipend to the primary family caregiver of an eligible veteran and adds training, mental health counseling, and some travel benefits. The veteran must have a VA disability rating of 70 percent or higher (individual or combined), need at least six continuous months of in-person personal care, and be enrolled in VA health care.4Veterans Affairs – VA.gov. Program of Comprehensive Assistance for Family Caregivers
The stipend is tied to the federal GS-4, Step 1 pay rate for the veteran’s locality, so the amount shifts by where the veteran lives. Level One is the base rate; Level Two, which applies when the VA determines the veteran can’t sustain themselves in the community, pays more.5VA Caregiver Support Program. PCAFC Monthly Stipend Fact Sheet
Veteran-Directed Care
Veteran-Directed Care works more like Consumer Direction. The VA gives the veteran a monthly budget, and the veteran or a representative decides how to spend it, including hiring a family member. A counselor helps draw up the spending plan. Hourly rates for VDC workers typically run about $15 to $20, higher in some areas, and that rate directly affects how many care hours the budget covers.6U.S. Department of Veterans Affairs. Veteran-Directed Care – Geriatrics and Extended Care7Administration for Community Living. Veteran Directed Care Billing and Invoicing Guide
Aid and Attendance or Housebound Benefits
A veteran who already receives a VA pension and needs help with daily activities, or is largely confined to home, may qualify for an added monthly payment. The money isn’t earmarked for caregivers, but it can be used to pay a family member. The maximum annual rates for 2026 (effective December 1, 2025) are:
- Aid and Attendance, no dependents: $29,093 per year (about $2,424 per month)
- Aid and Attendance, one dependent: $34,488 per year (about $2,874 per month)
- Housebound, no dependents: $21,313 per year (about $1,776 per month)
- Housebound, one dependent: $26,710 per year (about $2,226 per month)
Surviving spouses may qualify for a survivors pension with these same add-ons. For a surviving spouse with no dependents, the maximum annual rates are $18,697 (about $1,558 per month) with Aid and Attendance and $14,298 (about $1,192 per month) with Housebound. The amounts go up with dependents.9Veterans Affairs. Current Survivors Pension Benefit Rates
How to Apply
For TennCare CHOICES, where you start depends on current coverage. If the care recipient already has TennCare, call the managed care organization listed on the TennCare card and ask about CHOICES enrollment and Consumer Direction. If they don’t have TennCare yet, contact your local Area Agency on Aging and Disability at 1-866-836-6678; a representative can come to the home to help with the application. The LTSS Help Desk at 1-877-224-0219 handles questions about the long-term services Medicaid application itself.10TennCare. How to Apply
After enrollment, an assessment sets the level of care and the budget. A care plan lays out duties and hours. The care recipient (or representative) then hires the caregiver, and payment flows through a fiscal intermediary that handles payroll and tax withholding.
For VA programs, start with the VA Caregiver Support Line at 1-855-260-3274, or apply through VA.gov. PCAFC requires a formal application, a clinical assessment, and VA approval. Veteran-Directed Care is set up through the veteran’s local VA medical center.4Veterans Affairs – VA.gov. Program of Comprehensive Assistance for Family Caregivers
Taxes on What You Earn
Caregiving income is generally taxable, and the IRS usually treats these arrangements as household employment. Tennessee doesn’t tax wages, which simplifies things, but federal rules still apply.
If a care recipient pays a caregiver $3,000 or more in cash wages during 2026, Social Security and Medicare taxes (FICA) apply to all wages for the year, including the first $3,000. Federal unemployment tax (FUTA) kicks in on the first $7,000 of each employee’s wages if total cash wages to all household employees reach $1,000 or more in any calendar quarter of 2025 or 2026. The care recipient, as employer of record, files Schedule H with their federal return. Under Consumer Direction, the fiscal intermediary normally handles payroll and reporting.11Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
The Medicaid Waiver Exclusion
IRS Notice 2014-7 can eliminate federal income tax on these payments for some caregivers. Medicaid waiver payments for home and community-based care are treated as difficulty-of-care payments excludable from gross income when the caregiver and the care recipient live in the same home. The home doesn’t have to belong to the caregiver; if you moved into your parent’s house, that house counts as your home for this purpose.12Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
The exclusion applies even when you aren’t related to the person, as long as you share a home and the payments come through a qualifying Medicaid waiver like TennCare CHOICES. It does not apply to VA payments or private pay arrangements.
Put a Caregiver Agreement in Writing First
Families often skip a formal caregiver agreement because it feels awkward with a parent. Skipping it can wreck a future Medicaid application.
Federal law imposes a 60-month lookback period when someone applies for Medicaid long-term care. Any transfer of assets for less than fair market value during that window can trigger a penalty period, during which Medicaid will not pay for nursing facility care or home and community-based services.13Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
Without a written agreement, regular payments from a parent to an adult child look like gifts to a Medicaid reviewer. An agreement establishes that the money was compensation at a fair market rate for defined services. Spell out the services, the schedule, the hourly or monthly rate, and the payment method. Sign and date it before care begins. Notarizing it adds another layer of credibility.
Protecting the Family Home
After a Medicaid beneficiary dies, the state can seek reimbursement from their estate for long-term care costs it paid. The family home is often the largest asset exposed, but there is a specific protection for a family caregiver.
Under the caregiver child exception, a parent can transfer the home to an adult child without triggering a Medicaid transfer penalty if the child lived in the parent’s home for at least two continuous years immediately before the parent entered a nursing facility, and the care the child provided during that time was substantial enough to delay nursing home placement. The child has to be a biological or adopted child. Stepchildren, in-laws, grandchildren, and other relatives do not qualify.13Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
Documentation decides whether this works. Keep records showing where you lived, the care you provided, and medical evidence that your care delayed institutional care. Families that gather this as they go have a far easier time than families reconstructing it later.
What It Does to Your Own Social Security
Leaving a regular job to care for a parent can quietly cut your own Social Security retirement benefits. Social Security averages your highest 35 years of earnings, and every year with little or no income counts as a zero.14Social Security Administration. Additional Work Can Increase Your Future Benefits
Caregiver earnings that have FICA withheld do count toward your Social Security record. Payments excluded from income under the Medicaid waiver rule don’t, because no FICA is paid on excluded income. For caregivers who expect to be in this role for years, the tradeoff between tax-free income now and smaller retirement benefits later is worth weighing deliberately, ideally with a tax professional who knows household employment rules.