Family caregiver pay in Maryland, money a relative earns caring for a parent or spouse, can be taxable when Medicaid pays it, but VA has described its caregiver stipend as nontaxable. Maryland Medicaid pays for hands-on personal care at home through Community First Choice and Community Personal Assistance Services (CPAS), which let a person on Medicaid hire their own caregiver, and neither is a 1915(c) waiver, so the IRS Notice 2014-7 income exclusion isn't automatic for either.,,,,

In This Guide

Federal Income Tax on Family Caregiver Pay in Maryland, Program by Program

Program What kind of program Federal income tax on your pay
Community First Choice Medicaid state plan benefit, section 1915(k) Not automatically excluded; the IRS says it depends on the program
Community Personal Assistance Services (CPAS) Medicaid state plan amendment, section 1915(j) Not automatically excluded; the IRS says it depends on the program
Community Options Waiver Medicaid section 1915(c) waiver Covers no personal assistance of its own, so it is not how a relative is paid for hands-on care
VA caregiver stipend (PCAFC) VA payment to an approved family caregiver Nontaxable, in VA's own description
VA Aid and Attendance VA pension increase paid to the veteran Exempt from taxation as a VA benefit; ask a preparer about money the veteran passes to you
Private pay from the family Not Medicaid Notice 2014-7 never covers it

What IRS Notice 2014-7 Says

IRS Notice 2014-7 covers payments to individual care providers under a state Medicaid Home and Community-Based Services waiver described in section 1915(c) of the Social Security Act. The IRS treats these Medicaid 1915(c) waiver payments as "difficulty of care payments" excludable from gross income under section 131 of the Internal Revenue Code.

IRS Notice 2014-7 has a home condition. In the IRS's words about the Notice 2014-7 exclusion, "The exclusion only applies to payments for care in the individual care provider's home where the care recipient lives under the recipient's plan of care." The provider's home is where the provider "resides and regularly performs the routines of the provider's private life, such as shared meals and holidays with family."

For an adult child who moved into a parent's home and has no separate home, the IRS says "the mother's home became the provider's home." A caregiver who keeps a separate home elsewhere cannot exclude Medicaid waiver payments under Notice 2014-7. Notice 2014-7's home rule applies whether or not the caregiver is related to the person receiving care.

Why Most Maryland Caregiver Pay Falls Outside the Notice

Maryland's 1915(c) waiver for older adults and people with physical disabilities is the Community Options Waiver, and its regulation, Code of Maryland Regulations (COMAR) 10.09.54, covers no personal assistance or attendant benefit of its own., A Community Options Waiver participant who needs paid personal assistance gets it through Community First Choice (COMAR 10.09.84) or CPAS (COMAR 10.09.20), not through the waiver.

Community First Choice is a Maryland Medicaid state plan benefit, and CPAS runs under a section 1915(j) state plan amendment., For a program that isn't a 1915(c) waiver, the IRS states: "Whether the Service will treat payments under a state program other than a state Medicaid Home and Community-Based Services waiver program as difficulty of care payments excludable from gross income will depend on the nature of the payments and the purpose and design of the program."

That's a maybe, not a yes. If Community First Choice or CPAS pays you, take your program's name and your pay records to a tax preparer who knows Notice 2014-7 before you file.

Social Security and Medicare Tax

Social Security and Medicare (FICA) tax is a separate question from income tax. The IRS says even Medicaid waiver payments excludable from income under Notice 2014-7 "generally are wages for social security and Medicare tax purposes." Whether FICA applies depends on whether you are an employee of an agency, an employee of the person you care for, or an independent contractor.

If you think FICA was withheld in error, the IRS says to ask the agency that withheld it for a refund first, and to file Form 843 if the agency won't correct it.

Your W-2 and Your Federal Return

In self-directed Community First Choice, a Financial Management and Counseling Services (FMCS) contractor assists with "employment taxes and insurance and payroll processing." Ask that contractor which tax form you will get, and see who sends your W-2 or 1099.

If a payer treats your pay as excludable under Notice 2014-7, the IRS tells it to leave that amount out of box 1 of your W-2, or to report it in box 12 with code II.

Two IRS options matter if your pay is excludable. You may choose to count all of your excludable Notice 2014-7 payments, not part, as earned income for the Earned Income Credit in an open tax year. And if you paid tax on excludable payments in an earlier year, you can file Form 1040-X, generally within three years from the date you filed or two years from the date you paid the tax, whichever is later.

If the Person You Care For Is a Veteran

The VA's Program of Comprehensive Assistance for Family Caregivers pays an approved Primary Family Caregiver a monthly stipend, and VA described "the monthly personal caregiver stipend" as "a nontaxable benefit" in its 2020 proposed rule.

Aid and Attendance is paid to the veteran, not to you. Federal law says VA benefit payments "shall be exempt from taxation." The federal tax exemption for VA benefits is written for the veteran's benefit, so if the veteran pays you from Aid and Attendance money, ask a tax preparer how to report what you receive.

Maryland State and County Income Tax on Family Caregiver Pay

Taxable caregiver pay in Maryland is taxed twice at home. Maryland has a graduated state income tax, and Maryland's 23 counties and Baltimore City each levy a local income tax that Maryland's Comptroller collects on the state return. For tax year 2025, Maryland state income tax rates start at 2.00% on the first $1,000 of taxable income and rise to 6.50% on income over $1,200,001; Maryland county and Baltimore City local rates ran from 2.25% to 3.30%.

A federal exclusion under Notice 2014-7 is a federal answer. How Maryland treats the same payment on your state and county return is a separate question, so put it to a Maryland tax preparer or the Comptroller rather than assuming a state bill, or assuming there is none.

Frequently Asked Questions

Box 1 of my W-2 is blank. Is that a payroll mistake?

Not necessarily. The IRS says a payer should leave box 1 blank when everything it paid you is excludable under Notice 2014-7, so a blank box 1 is the expected result of the exclusion. If box 1 is blank or zero and you aren't counting the payments as earned income for a credit, the IRS says you don't need to report that W-2's amounts on your return. Because Community First Choice and CPAS aren't 1915(c) waivers, ask the payer which rule it applied before you rely on the blank box.,,

My parent pays me from savings. Does Notice 2014-7 help?

No. The IRS says a care provider "may not exclude direct payments from a care recipient who pays part or all of the cost of the recipient's care with the care recipient's private funds." IRS Publication 926 says wages paid to a child, spouse or parent as a household employee are still subject to federal income tax. A written personal care agreement covers how to set that up.

Learn More

CaregiverHow to Get Paid as a Family Caregiver in MarylandGet paid to care for a family member in Maryland: self-directed Community First Choice, the VA caregiver programs, and when a spouse can be hired. CaregiverMaryland Community First Choice: How a Family Caregiver Gets PaidMaryland CFC self-direction lets a parent on full Medicaid hire a family member as a paid caregiver. Who can be hired, payroll help, and how CPAS differs. CaregiverGetting Paid to Care for Your Spouse in MarylandCan a spouse be paid as a caregiver in Maryland? How self-directed Community First Choice, CPAS, ICS, PCAFC and Veteran-Directed Care treat a husband or wife. CaregiverMaryland Caregiver ProgramsThe Maryland programs that support family caregivers, how Medicaid self-direction works, how to get a respite break, and where to get help in Maryland. CaregiverAre Medicaid Waiver Payments Taxable?Are Medicaid waiver payments taxable? Usually not, if you live with the person you care for. What IRS Notice 2014-7 excludes, what it misses, how to report it. CaregiverPaid Family Caregiver: W-2 or 1099?As a paid family caregiver through Medicaid, your W-2 or 1099 comes from whoever is legally your employer. Who that is under self-direction, agencies and SFC.

Find personalized help understanding taxes on Maryland family caregiver pay at brevy.com.

The information on Brevy.com is for educational purposes only and is not a substitute for professional legal, financial, or medical advice. Rules vary by state and program and change frequently. Always verify with the relevant agency or a qualified professional. Brevy is not a law firm, financial advisor, or healthcare provider.

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