Internal Revenue Service United States Department of the Treasury
Level Basic Advanced Military International

Other Income, Form 1040 Line 21

Other Income

Medicaid Waiver Payments

On January 3, 2014, the IRS issued Notice 2014-7 addressing the income tax treatment of certain payments to an individual care provider under a state Home and Community-Based Services Waiver (Medicaid waiver) program. The notice provides that the IRS will treat "qualified Medicaid waiver payments" as difficulty of care payments excludable from gross income. Qualified Medicaid waiver payments are payments by a:

  • State
  • Political subdivision of a state
  • Certified Medicaid provider under a Medicaid waiver program to an individual care provider for nonmedical support services provided under a plan of care to an individual (whether related or unrelated) living in the individual care provider's home

If taxpayers received payments described in Notice 2014-7, they may receive a Form 1099-MISC reporting these payments in box 3, Other income. Generally, an amount reported in box 3 of Form 1099-MISC is reported on Form 1040, line 21, Other income. If taxpayers choose to exclude the payment from income, they should not include the amount of those payments on line 21.

If the taxpayer received a Form W-2, Wage and Tax Statement, with the amount of the payments reported in box 1, Wages, tips, other compensation and chooses to exclude the payment from income, include the full amount of those payments on Form 1040, line 7. On line 21, enter the excludable portion of the payments as a negative amount that will reduce the adjusted gross income.

Tip

For more information, go to irs.gov and search for Certain Medicaid Waiver Payments.