Yes, you generally address IHSS payments when reporting income to the IRS, but whether they are taxable depends on one fact: whether you live in the same home as the person you care for. If you do, In-Home Supportive Services payments are excludable from federal gross income as qualified Medicaid waiver payments under IRS Notice 2014-7. If you live at a separate address, every dollar is taxable and must be reported on your return.1Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
The Live-In Rule Decides Everything
The exclusion turns on shared residence, not family relationship. An adult child who moves into a parent’s home to provide full-time care qualifies. A parent caring for a disabled child in the family home qualifies. An unrelated caregiver who lives full-time with an elderly recipient and has no separate home qualifies. In each case, the shared address is what creates the exclusion.2Internal Revenue Service. Notice 2014-7
A “home” for this purpose is where you actually reside and carry out your private life: sleeping there every night, sharing meals, spending holidays. A provider who drives to the recipient’s house each day and returns to a separate residence does not qualify, even if most waking hours are spent at the recipient’s home.1Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
One boundary matters even for live-in providers: respite or substitute care provided at the recipient’s home by someone who lives elsewhere is not excludable, even if the regular live-in provider’s own pay qualifies.1Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
Reporting Live-In IHSS Income That Is Tax-Free
Even when your payments are fully excluded, filing correctly takes some care because the agency may still issue you a W-2 or 1099. How you handle the form depends on how the payer reported the payments.
W-2 With Box 12 Code II
Starting with 2024 wages, agencies report excludable Medicaid waiver payments in Box 12 using Code II, and Box 1 should show zero or be blank. If your W-2 looks like this and you are not electing to count the payments as earned income for credit purposes, you do not need to report the W-2 on your return at all.1Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
W-2 With Wages Still in Box 1
Some agencies still report excludable payments in Box 1. If that happens, report the Box 1 amount on Form 1040, line 1a, and any Box 12 Code II amount on line 1d. Then, on Schedule 1 (Form 1040), line 8s, enter the nontaxable total in the preprinted parentheses as a negative number. That backs the excluded payments out of your total income.3Internal Revenue Service. Instructions for Form 1040 (2025)
1099-NEC or 1099-MISC
If you receive a 1099-NEC or 1099-MISC and operate as a sole proprietor, include the full payment amount on Schedule C, line 1. Then enter the excludable amount as an expense in Part V (Other Expenses) and write “Notice 2014-7” next to it. That zeros out the taxable effect without triggering a mismatch with IRS records. If you received a 1099 but are not self-employed, enter the nontaxable amount on Schedule 1, line 8s as a negative number instead.1Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
Stopping Withholding Going Forward
Many states let live-in IHSS providers self-certify their living arrangement so the agency stops withholding federal and state income tax from each paycheck. The process typically involves submitting a form to your state’s IHSS program confirming that you live in the same home as the recipient. Once processed, future W-2s should show zero in Box 1 and your excludable wages in Box 12 Code II. If your living arrangement changes, notify the agency so withholding resumes. Check with your state’s IHSS program for the specific form.
Reporting Taxable IHSS Income
When you don’t live with the care recipient, the exclusion doesn’t apply and your payments are ordinary taxable income. How you report depends on the form you receive.
W-2 Providers
Report the Box 1 wages on Form 1040, line 1a. You are classified as an employee, and the income is subject to federal income tax. Whether FICA (Social Security and Medicare) was withheld depends on your relationship to the care recipient and the program’s structure. Check Boxes 4 and 6 on your W-2.
1099-NEC Providers
A 1099-NEC means the program treated you as an independent contractor. Report the income on Schedule C and deduct ordinary business expenses tied to providing care, such as mileage and supplies. Net profit flows to Form 1040 and is subject to both income tax and self-employment tax if it exceeds $400.4Internal Revenue Service. Form 1099-NEC and Independent Contractors
Self-employment tax covers both halves of Social Security and Medicare, calculated on Schedule SE. If you expect to owe $1,000 or more when you file, make quarterly estimated payments using Form 1040-ES to avoid an underpayment penalty.5Internal Revenue Service. Estimated Taxes
Counting Excluded Payments Toward the EIC and Child Tax Credit
Live-in providers can choose to treat their excluded IHSS payments as earned income when calculating the Earned Income Credit (EIC) or the Additional Child Tax Credit (ACTC). The election does not make the payments taxable. It only lets them count toward the earned-income thresholds for these refundable credits.1Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
The election is all-or-nothing: you must include the full amount of your excluded payments, not part of it. Report the excluded amount on Form 1040, line 1d, and back it out on Schedule 1, line 8s as a negative number. Whether the election helps depends on household size, filing status, and total income, so run the numbers both ways before filing.
FICA Rules When a Family Member Pays a Family Member
Even when IHSS payments are taxable, federal household-employer rules exempt certain family wages from Social Security and Medicare tax. FICA does not apply to wages paid to:
- Your spouse for household work.
- Your child under age 21 for household work.
- Your parent, unless specific conditions are met involving care of your child under 18 (or a child with a condition requiring adult care) combined with your being divorced, widowed, or having a spouse unable to provide care.
- Any employee under age 18, unless household work is their principal occupation (being a student means it is not).
If you provide IHSS care to your parent, for example, your wages are generally exempt from FICA even when otherwise taxable. That shows up on your W-2 as blank or zero Boxes 4 and 6. Federal unemployment tax (FUTA) is also exempt for wages paid to a spouse, a child under 21, or a parent.6Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
Amending Past Returns If You Paid Tax You Shouldn’t Have
If you’re a live-in provider who paid federal income tax on payments that should have been excluded, file Form 1040-X to claim a refund. Many providers were unaware of Notice 2014-7 for years and overpaid.
The general deadline is three years from the date you filed the original return, or two years from the date you paid the tax, whichever is later.7Internal Revenue Service. Time You Can Claim a Credit or Refund
In Part III of Form 1040-X, explain that the payments are excludable under Notice 2014-7. To speed processing, include:
- The full name and Social Security number (if available) of the person you cared for.
- Third-party documents showing you and the recipient shared an address during the tax year, such as a driver’s license, bank statement, utility bill, or agency record.
- Documentation that the recipient was enrolled in a state Medicaid waiver program.
Excluding the payments from an earlier year may change other items on that return, such as deductions or credits calculated on the higher income figure. Form 1040-X can be filed electronically for the current year and the two prior tax years.
Records to Keep
Whether your IHSS income is excluded or taxable, keep records that can support your filing position. For live-in providers claiming the exclusion, the priority is proof of shared residency: utility bills, lease agreements, driver’s licenses, or official correspondence showing the same address for you and the recipient throughout the year. Also keep the IHSS program’s authorization documents showing the recipient’s eligibility and the payments you received. Retain W-2s, 1099s, and residency records for at least three years from the date you filed the return.8Internal Revenue Service. Topic No. 305, Recordkeeping
Most states that impose an income tax follow the federal treatment of difficulty of care payments, so income excluded federally is generally excluded on the state return as well. A few states have their own rules, so confirm with your state’s guidance.