Is Michelle P Waiver Considered Income? Taxes, SSI, and SNAP

Michelle P. Waiver payments generally are not considered income for federal tax purposes or for Supplemental Security Income, as long as the caregiver and the person receiving care live in the same home. The exclusion comes from IRS Notice 2014-7, which treats Medicaid Home and Community-Based Services waiver payments as “difficulty of care” payments under 26 U.S.C. § 131.¹ The same reasoning carries over to most other benefit programs, but the details differ by program and by how you are classified as a worker.

Federal Income Tax

Under Notice 2014-7, payments received through a state Medicaid waiver program for care provided in the caregiver’s home are excluded from gross income.¹ The exclusion applies whether payments come through an agency or directly from the state, and it applies whether or not you are related to the person you care for.²

What matters is the shared residence. The IRS defines “the provider’s home” as the place where the provider lives and regularly carries out the routines of private life.² A parent caring for an adult child at home qualifies. A caregiver who moves in with the recipient and gives up any separate residence qualifies. A caregiver who travels to the recipient’s home during the day and returns to their own home at night does not, and those payments remain taxable.

Keep documentation showing the shared address: driver’s licenses, utility bills, bank statements, or other government-issued records.²

How to Report the Payments

Even though the payments are not taxable, you still need to report them so the IRS can see the exclusion. How you do that depends on the tax form you received:

If you received a W-2, report the amount on line 1 of Form 1040 as wages, then enter the same amount as a negative number on Schedule 1, line 8.
If you received a 1099-NEC or 1099-MISC, report the amount on Schedule 1, line 8 as other income, then subtract the excludable amount on the same line so the net is zero.
If you did not receive any tax form, you can still report and exclude the payments. Contact your payroll agency or the Kentucky Department for Medicaid Services if you need official records.

In every case, write “Notice 2014-7” next to the entry on Schedule 1, line 8. For electronically filed returns, enter “Notice 2014-7” in the explanation field.²

Amending Prior Returns

If you paid federal tax on Michelle P. Waiver payments in a past year and you met the shared-residence rule, file Form 1040-X to claim a refund. The deadline is generally three years from the date you filed the original return or two years from the date you paid the tax, whichever is later.³ Attach documentation showing you and the recipient shared a home during the tax year and that the recipient was receiving care under the waiver.

FICA, Self-Employment Tax, and Social Security Credits

Income tax and payroll tax are separate questions. Whether Social Security and Medicare taxes apply to your waiver payments depends on how your working relationship is classified:²

As an independent contractor without a separate home care business, the payments are not subject to Social Security, Medicare, or self-employment tax.
As an agency employee, the payments are subject to Social Security and Medicare taxes even though they are excluded from income tax.
If the care recipient is treated as your employer, FICA generally applies, though there are exceptions for domestic services performed for a spouse, child, or by a child under 21 for a parent.

This affects more than your paycheck. Social Security work credits are earned only on wages or self-employment income that is subject to Social Security tax. Independent contractor caregivers whose only income is excluded waiver payments earn no credits, which can reduce or eliminate later eligibility for Social Security retirement and SSDI. Caregivers classified as employees continue to earn credits even while the payments are excluded from income tax.

SSI Eligibility

The Social Security Administration generally does not count Medicaid waiver difficulty of care payments as earned or unearned income for SSI. A parent caring for a child on SSI usually does not see the child’s monthly benefit reduced because of the waiver payments.

Resource limits still apply. SSI recipients must stay below $2,000 for an individual or $3,000 for a couple as of 2026.⁴ Waiver funds spent on daily living do not accumulate, but funds allowed to build up in an account can push a recipient over the threshold.

In-Kind Support and Maintenance

When an SSI recipient lives in someone else’s home, the Social Security Administration looks at whether the recipient is paying a fair share of household shelter costs. If another person covers most of the rent, mortgage, or utilities, SSA may reduce the SSI payment under the in-kind support and maintenance rules.⁵ As of September 2024, food is no longer included in these calculations. For 2026, the SSI Federal Benefit Rate for an individual is $994 per month, and the maximum reduction under the one-third rule is approximately $331.⁶ Having the SSI recipient contribute a documented fair share toward shelter from their own benefit prevents the reduction.

SSDI and Substantial Gainful Activity

If you receive SSDI and also earn Michelle P. Waiver payments, whether those payments count toward the Substantial Gainful Activity limit follows the FICA classification. For 2026, the SGA threshold is $1,690 per month for non-blind individuals and $2,830 for blind individuals.⁷ Payments not subject to FICA or self-employment tax generally are not counted as earnings for SGA. Payments from which FICA is withheld can count and could affect SSDI if they exceed the monthly limit.

SNAP and Housing Assistance

SNAP eligibility depends on household gross and net income against program thresholds.⁸ Because waiver payments reimburse caregiving rather than pay standard wages, they are generally not counted for SNAP, and food assistance should not drop because of them.

For federally subsidized housing, the exclusion is explicit. Under 24 CFR § 5.609(b)(19), annual income does not include payments made or authorized by a state Medicaid agency to a family that enable a family member with a disability to live in the family’s assisted housing unit, including payments to a family member who provides caregiving services.⁹ Your Section 8 voucher or public housing rent calculation should not change because of Michelle P. Waiver income.

Kentucky State Income Tax

Kentucky calculates state income tax starting from federal adjusted gross income. Because the Notice 2014-7 exclusion removes qualifying waiver payments before AGI is calculated, the exclusion generally carries through to your Kentucky return without a separate adjustment. Confirm your specific situation with the Kentucky Department of Revenue or a tax professional if you have unusual facts.

When You May Want to Count the Payments Anyway

Earned Income Credit and Additional Child Tax Credit

Even though the payments can be excluded, you may elect to include the full amount as earned income to qualify for the Earned Income Credit or the Additional Child Tax Credit.² The election is all or nothing: include the full amount as earned income, or none of it. Including them for the credit does not make the payments taxable.

IRA Contributions

Section 116 of the SECURE Act of 2019 lets caregivers treat excluded difficulty of care payments as compensation for retirement contribution purposes.¹⁰ A caregiver whose only income is excluded waiver payments can contribute to a Traditional or Roth IRA up to $7,500 for 2026, or $8,600 at age 50 or older.¹¹

1
Internal Revenue Service. Notice 2014-7
2
Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
3
Office of the Law Revision Counsel. 26 U.S. Code 6511 – Limitations on Credit or Refund
4
Social Security Administration. SSI Spotlight on Resources
5
Social Security Administration. Understanding Supplemental Security Income Living Arrangements
6
Social Security Administration. SSI Federal Payment Amounts for 2026
7
Social Security Administration. Substantial Gainful Activity
8
Food and Nutrition Service. SNAP Eligibility
9
eCFR. 24 CFR 5.609 – Annual Income
10
Internal Revenue Service. Operational Compliance List
11
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500