Are Home Help Payments Taxable? Michigan Caregiver Taxes Explained

Are Home Help payments taxable? In most cases, yes, with one big exception. Under IRS Notice 2014-7, Medicaid caregiver pay you receive for someone who lives in the same home as you can be excluded from federal income tax as a difficulty-of-care payment. If you live apart from the person you care for, the pay is taxed like ordinary wages.

On this page

1. Are Home Help payments taxable in Michigan?
2. What are difficulty-of-care payments under IRS Notice 2014-7?
3. When does the live-in caregiver tax exemption apply, and when does it not?
4. Which forms do you file for the live-in caregiver tax exemption?
5. Will I get a W-2 or a 1099?
6. Does Michigan tax Home Help payments?
7. Can excluded pay still count toward the Earned Income Tax Credit?
8. Frequently asked questions

Are Home Help payments taxable in Michigan?

Yes, as a general rule. When the Michigan Department of Health and Human Services pays you as an individual Home Help provider, the money is compensation for work. The IRS treats it as income, and so does the Michigan Department of Treasury.

The exception is the difficulty-of-care rule. If you and the person you care for share a home, the payments can be left out of your gross income entirely, which can make a large difference in what you owe. For how the pay itself is calculated, see our guide to how much family caregivers get paid in Michigan.

What are difficulty-of-care payments under IRS Notice 2014-7?

IRS Notice 2014-7 says that payments made under a state Medicaid home and community-based program to an individual care provider, for care of an eligible person living in the provider’s home, are difficulty-of-care payments. They are excludable from federal gross income under Internal Revenue Code section 131.

The notice was written for Medicaid waiver programs, and the IRS later confirmed in its questions and answers that it also covers similar state programs. MDHHS applies the exclusion to Home Help individual providers who live with their client, and agency caregivers who live with the client can qualify as well. The full text of the notice and the IRS questions and answers are on the IRS website.

Three conditions that must all be true

• The payment comes from a Medicaid-funded program, such as Home Help or the MI Choice Waiver.
• You provide personal care or supportive services to an eligible person.
• You and the person you care for live in the same home. It can be your home or theirs, as long as it is one shared residence.

When does the live-in caregiver tax exemption apply, and when does it not?

The IRS does not care whether you are a spouse, an adult child or a friend. It cares whether the home is shared.

Situations where the exclusion usually applies

• You moved into your mother’s house in Dearborn to care for her, and you sleep there every night.
• Your adult son with a disability lives with you in Warren and you are his Home Help provider.

Situations where the pay is taxable

• You drive across Detroit each day to care for your father, then go home.
• You care for two clients, only one of whom lives with you. Only that client’s pay is excludable.

If your living arrangement changes during the year, the exclusion applies only to the months you shared a home, so keep a record of move-in and move-out dates.

Which forms do you file for the live-in caregiver tax exemption?

People searching for a “live in caregiver tax exemption form” usually want to stop withholding on excluded pay. There are two pieces of paperwork to know about.

1. The MDHHS live-in certification. MDHHS provides a form for Home Help individual providers to certify that they live with the client so payments can be reported as difficulty-of-care income. Ask your Adult Services Worker for it during CHAMPS enrollment or any time your address changes.
2. Your federal return. If the excluded amount still shows up as wages on your W-2, the IRS instructions let you subtract it on Schedule 1 as a negative “other income” entry labeled “Notice 2014-7.” If the amount was already left out of Box 1, no extra step is needed.

Agency caregivers who live with their client should tell the agency so payroll reports it correctly. Supportive Solutions Homecare covers this during onboarding, and our family caregiver pay in Michigan page explains the basics.

Will I get a W-2 or a 1099?

It depends on how you are paid.

How you are paid	Typical tax form	Who withholds taxes
Individual provider paid directly by MDHHS through CHAMPS	W-2 from the state payroll system	Withholding depends on the W-4 you file with MDHHS
Caregiver employed by a home care agency	W-2 from the agency	The agency withholds income tax, Social Security and Medicare
Private-pay caregiver hired directly by a family	W-2 if a household employee, or 1099-NEC if self-employed	The family, or you if self-employed

Whatever form you get, keep your pay stubs and EVV visit history. They show which months you were paid and lived with the client.

Does Michigan tax Home Help payments?

Michigan’s individual income tax begins with your federal adjusted gross income. Because difficulty-of-care payments never enter federal gross income, they are generally not taxed by the State of Michigan either. Taxable Home Help pay, for caregivers who live apart from the client, is taxed at Michigan’s flat rate like any other wages.

Some Michigan cities, including Detroit, Flint, Lansing and Grand Rapids, collect a city income tax. City returns generally follow the same starting point, so excluded pay is usually not taxed at the city level, but check the city’s instructions. Caregivers in Dearborn, Warren, Sterling Heights and Ann Arbor have no city return to worry about.

Can excluded pay still count toward the Earned Income Tax Credit?

Yes. Since 2019 the IRS has let taxpayers choose to include Notice 2014-7 payments as earned income when figuring the Earned Income Tax Credit and the refundable child tax credit, even though the payments are excluded from gross income. For a lower-income caregiver that choice can mean a bigger refund. You must make the same choice for both credits.

Because the election, withholding paperwork and W-2 reporting all interact, we strongly recommend that every Home Help caregiver review their return with a qualified tax professional or a free VITA site before filing. We can explain how you will be paid, but we do not give tax advice.

Frequently asked questions

Is Home Help pay taxable?

Usually yes, because it is payment for work. The exception is IRS Notice 2014-7: if you live in the same home as the person you care for, Medicaid caregiver payments are treated as difficulty-of-care payments and excluded from federal gross income. Caregivers who live apart from the client owe federal and Michigan income tax on their Home Help pay.

What is the live-in caregiver tax exemption form?

There is no single IRS form. In Michigan, MDHHS provides a certification that a Home Help provider lives with the client, which lets payments be reported as excluded income. On your federal return, any excluded amount that still appears in wages can be subtracted on Schedule 1 with the note “Notice 2014-7.” Ask your caseworker or agency for the state paperwork.

Do family caregivers get a W-2 or a 1099 in Michigan?

Individual Home Help providers paid by MDHHS through CHAMPS typically receive a W-2, and caregivers employed by an agency always receive a W-2 from the agency. A 1099 usually appears only when a family hires a caregiver privately as a self-employed worker. Check your first pay stub and ask which form to expect.

Does the exclusion apply if I care for my spouse?

The tax exclusion is about the shared home, not the relationship, so a spouse who lives with the care recipient and is paid under a Medicaid program can exclude the payments. Whether a spouse can be paid at all depends on program rules, which differ between Home Help and the MI Choice Waiver, so confirm that with MDHHS first.

Can I still get the Earned Income Tax Credit on excluded pay?

Yes. The IRS allows you to elect to treat Notice 2014-7 payments as earned income for the Earned Income Tax Credit and the additional child tax credit, even though they are excluded from gross income. The election must be applied to both credits together. Run the numbers both ways, because including the pay sometimes increases your refund.