If you provide care in your home to an eligible person under your state’s Medicaid program and receive Medicaid payments for that care, you may be able to exclude some of those payments from your taxable income. If these payments are qualified Medicare waiver payments, the IRS will treat these payments as difficulty of care payments that are excluded from your gross income according to Notice 2014-7.
If qualified payments haven’t already been excluded from your income on your W-2, you can include the amount on line 7 of Form 1040. On line 21, you will subtract the nontaxable payments from your income. To determine if your Medicare waiver payments can be excluded from income, click here.