Certain Medicaid Waiver Payments May Be Excludable From Income

The Internal Revenue Service (IRS) recently reversed a policy and now allows parents of people with disabilities who receive Medicaid Home and Community Based waiver funds, for care giving services provided to their children, to exclude those funds from their incomes. Notice 2014-7 describes changes in the IRS policy. These changes may apply to foster and biological parents caring for a person with Duchenne muscular dystrophy, depending on available state programs and the eligibility of the parent. 

Here’s how this change in IRS policy might affect you:

If You Are a Foster Parent

  • Foster parents may continue to exclude "qualified foster care payments" from state agencies from their incomes.
  • Foster parents of children with disabilities may continue to exclude "difficulty of care” payments (these are funds provided to foster parents for the additional care provided to a child with disabilities).

If You Are a Biological Parent

  • The IRS now recognizes the objective behind these Medicaid Home and Community Based waiver payments is “enabling individuals who otherwise would be institutionalized to live in a family home setting rather than in an institution, and both difficulty of care payments and Medicaid waiver payments compensate for the additional care required.”
  • As of January 3, 2014, the IRS has begun to allow parents of children with disabilities to exclude qualified Medicaid Home and Community Based waiver payments (payments for the time spent caring for their children above and beyond what children without disabilities need) from their income.

For more information about how you may be able to exclude Medicaid waiver income, talk to a financial adviser or special needs planner, or feel free to email me.

To visit the IRS website regarding this change, please visit Notice 2014-7.

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