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Is Family Caregiver Pay Taxable in Illinois? · Home Care Powered By AUAF

• 0:13
  SPEAKER_00: Today, we are answering a question many Illinois families ask.
• 0:17
  SPEAKER_00: Is family caregiver pay taxable?
• 0:19
  SPEAKER_00: I'm Elena.
• 0:20
  SPEAKER_01: And I'm Brooks.
• 0:22
  SPEAKER_01: If you get paid to care for a parent or loved one, this one's for you.
• 0:26
  SPEAKER_01: One note before we start: this is general information, and a tax professional should confirm your own situation.
• 0:34
  SPEAKER_00: So the short answer?
• 0:35
  SPEAKER_01: In most cases, yes.
• 0:37
  SPEAKER_01: Pay for caregiving work is income, just like pay from any other job.
• 0:42
  SPEAKER_01: When a home care agency employs you, your wages normally show up on a form W2.
• 0:48
  SPEAKER_00: But there's an important exception.
• 0:50
  SPEAKER_01: There is, and it's a federal rule.
• 0:53
  SPEAKER_01: Caregivers paid through a Medicaid waiver program may be able to exclude that pay from federal income tax if they share a home with the person they care for.
• 1:03
  SPEAKER_00: Let's unpack that.
• 1:04
  SPEAKER_00: What makes the pay qualify?
• 1:06
  SPEAKER_01: Under IRS Notice 2014-7, qualified Medicaid waiver payments count as difficulty of care payments.
• 1:14
  SPEAKER_01: That applies whether or not you're related to the person you care for.
• 1:18
  SPEAKER_00: And how does Illinois fit in?
• 1:20
  SPEAKER_01: Illinois Waiver Pay can qualify because the state runs a Medicaid waiver for seniors.
• 1:25
  SPEAKER_01: According to Illinois Healthcare and Family Services, the persons who are elderly waiver is part of the community care program, and the Illinois Department on Aging runs it day to day.
• 1:36
  SPEAKER_00: You said sharing a home is the key test.
• 1:39
  SPEAKER_00: Can you walk through some examples?
• 1:42
  SPEAKER_01: Sure.
• 1:42
  SPEAKER_01: Based on the IRS guidance on Medicaid waiver payments.
• 1:46
  SPEAKER_01: If your parent lives with you under a care plan, the waiver pay can be excluded.
• 1:51
  SPEAKER_01: If you moved into your parents' home to give care, it can also be excluded.
• 1:56
  SPEAKER_00: And if you live in your own home and just visit?
• 1:59
  SPEAKER_01: Then it's generally taxable.
• 2:01
  SPEAKER_01: And two more cases that don't qualify.
• 2:04
  SPEAKER_01: Pay that comes from the senior's private funds and vacation pay from the agency.
• 2:09
  SPEAKER_00: Is there a limit on how many people you can care for under this rule?
• 2:13
  SPEAKER_01: Yes.
• 2:14
  SPEAKER_01: A caregiver can't exclude payments for more than five eligible individuals aged 19 or older.
• 2:20
  SPEAKER_01: The tax code sets that cap, and Notice 2014-7 applies it to waiver payments.
• 2:27
  SPEAKER_00: Now, if the pay is excluded from income tax, does that mean no Social Security or Medicare taxes either?
• 2:34
  SPEAKER_01: Often, those still apply.
• 2:36
  SPEAKER_01: It depends on who employs you.
• 2:38
  SPEAKER_01: If you work for an agency, the agency generally withholds and reports those taxes.
• 2:44
  SPEAKER_01: If you're employed by the person you care for, they generally apply, with some family exceptions.
• 2:50
  SPEAKER_01: And independent contractor payments aren't subject to them.
• 2:53
  SPEAKER_00: What are those family exceptions?
• 2:56
  SPEAKER_01: They cover care for your spouse or your child, and a child under 21 who works for a parent.
• 3:02
  SPEAKER_01: But again, a tax professional should confirm which rule fits your setup.
• 3:07
  SPEAKER_00: Let's get practical.
• 3:08
  SPEAKER_00: How do you report excluded pay?
• 3:11
  SPEAKER_01: It starts with your W2.
• 3:13
  SPEAKER_01: Excludable pay shouldn't appear in box 1.
• 3:16
  SPEAKER_01: Instead, the agency may show it in box 12 with code double I.
• 3:21
  SPEAKER_00: And on the return itself?
• 3:23
  SPEAKER_01: Following the IRS Medicaid waiver payments guidance for a 2025 federal return.
• 3:29
  SPEAKER_01: You enter the box 1 amount, if any, on Form 1040 line 1A.
• 3:35
  SPEAKER_01: You add the box 12 code double I amount on line 1D.
• 3:39
  SPEAKER_01: Then you show the total non-taxable amount as a negative number on Schedule 1, line 8s.
• 3:46
  SPEAKER_00: That's a lot of line numbers.
• 3:48
  SPEAKER_00: Any advice on records?
• 3:50
  SPEAKER_01: Keep proof that you and the person shared a home and proof of their waiver enrollment.
• 3:55
  SPEAKER_01: Those papers help if the IRS asks questions later.
• 3:59
  SPEAKER_01: And if your agency put the full amount in box one by mistake, ask for a corrected W-2 before you file.
• 4:06
  SPEAKER_00: What about Illinois income tax?
• 4:08
  SPEAKER_01: Illinois builds on your federal return.
• 4:11
  SPEAKER_01: The Illinois Department of Revenue says Illinois base income starts with your federal adjusted gross income.
• 4:18
  SPEAKER_01: So pay you exclude federally usually stays out of that starting figure.
• 4:22
  SPEAKER_01: Illinois does add back some types of income, so review the IL 1040 additions with a tax professional.
• 4:30
  SPEAKER_00: Let's do a few quick questions families ask.
• 4:32
  SPEAKER_00: Can I claim my parent as a dependent if I'm their paid caregiver?
• 4:36
  SPEAKER_01: Possibly.
• 4:37
  SPEAKER_01: The IRS lists several tests.
• 4:40
  SPEAKER_01: Your parents' gross income must be below$5,200 for 2025 returns or below$5,300 for the 2026 tax year.
• 4:51
  SPEAKER_01: You also need to pay more than half of their support.
• 4:54
  SPEAKER_00: Does excluded pay count toward the earned income tax credit?
• 4:58
  SPEAKER_01: It can.
• 4:59
  SPEAKER_01: The IRS lets caregivers choose to count all excluded waiver payments as earned income for the earned income tax credit and the additional child tax credit if the payments would otherwise count as wages.
• 5:12
  SPEAKER_01: For some families, that can raise the credit.
• 5:15
  SPEAKER_00: And if someone already paid tax on waiver payments in past years, they may be able to fix it.
• 5:21
  SPEAKER_01: You can file Form 1040X within three years of filing or two years of paying the tax, whichever is later.
• 5:28
  SPEAKER_01: Explain that the payments are excludable under Notice 2014 7 and keep proof of the shared home.
• 5:36
  SPEAKER_00: The full guide with the table of common situations is on homecareid.com.
• 5:41
  SPEAKER_00: This episode is general information, not personal tax advice, so talk with a tax professional about your own return.
• 5:49
  SPEAKER_00: It also uses AI generated host voices.