Notice 2014-7 with ACA Question

[kpd905]

Not sure if anyone else has experience with this, but Notice 2014-7 is a rule by the IRS that family caregivers are exempt from paying tax on income they receive for giving in home care.  My dad receives this income from a state program to take care of my disabled mom.  He receives about $25,000 a year for this, and their only other income is her social security income of about $20,000.

They just did their taxes, and the tax preparer told him that even though his income is not taxable, he should still count it toward their household income for ACA tax credits.  I am wondering if this is true, because the calculators for figuring out MAGI tell you to start with AGI (which would not include this income) and then add in tax-exempt interest.

He will still receive some good tax credits if they count this income, but if they wouldn't have to count it, he would have much lower premiums and deductible/out of pocket.

I appreciate any help.

[secondcor521]

Not much experience except that I was trained in my tax-aide class that individuals can elect to treat Medicaid waiver payments as earned income for the EITC and the CTC.  Since earned income is a subset of gross income which is the source from which AGI is calculated, from which MAGI is derived, on which the ACA credits are based, it would seem reasonable to me that he would be on sound footing to include it if your Dad wanted to.

Personally I would either include it in all calculations or exclude it from all calculations (i.e., I don't think it would be reasonable to include MWP for EITC purposes but exclude it for ACA purposes).  But I think you could run your taxes both ways and then choose the most advantageous way to do things.

Also, I don't think you can include or exclude a portion of MWP.  I think you would have to include or exclude the entire $25K.  But I'm not sure about that either.

This link has a 2020 court ruling and some other info that may be helpful:

https://latinotaxpro.com/blogs/news/excluding-medicaid-waiver-payments-adversely-affects-low-income-taxpayers

(I searched on Medicaid Waiver Payments and the above is the first Google link.)

[kpd905]

Thanks for the info. 

This time around, they were dealing with an unexpected IRA withdrawal that would have forced them to pay back ~$10,000 in premium tax credits.  However, since his income for taking care of my mom turned our to be untaxed, they stayed under the 400% FPL threshold.  On the ACA worksheet, the tax preparer included my mom's entire social security income (even the untaxed portion) and the entire IRA withdrawal.  She did not include my dad's income.  Yet, she tells him to include it in the future when putting in an income estimate for ACA.

The difference will be pretty large.  If they don't include it, my mom's $20,000 would be their only income, which would be around 130% FPL.  With his income it is closer to 300% FPL.

As far as I know, there aren't any other credits they would be eligible for, just the premium tax credits.

[secondcor521]

Also, I don't think you can include or exclude a portion of MWP.  I think you would have to include or exclude the entire $25K.  But I'm not sure about that either.

It appears that you must include or exclude all of the MWP from step 5, substep 1, line 5 of the instructions for line 18a (EITC) in the 2019 tax instructions:

" Enter any amount included on Form 1040 or 1040-SR, line 1, that is a Medicaid waiver payment you exclude from income (see the instructions for Schedule 1, line 8), unless you choose to include this amount in earned income, in which case enter zero."