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The following REPLACES page 115 of the ProSeries Manual
Medicaid Waiver Payments (and Qualified Foster Care Payments)
The IRS has updated Publication 4491-X, VITA Alert 2020-03, and the Form 1040 Instructions to account
for the Feigh decision.
The following instructions for ProSeries have been modified to incorporate the May 15, 2019 Tax Court
Decision of Feigh v. Commissioner 152 T.C. No. 15. In that decision, the Tax Court ruled that the Feighs
were allowed to exclude their difficulty of care / Medicaid waiver payments from gross income, but they could be includible as earned income for the Earned Income Tax Credit and the Child Tax Credit.
Note 1: If taxpayer received Medicaid Waiver payments, volunteers should ask whether they received payments in prior years. If so, they may want to amend their tax returns. But to receive any refund for
the 2016 tax year, the taxpayer generally must file the amendment before April 15, 2020.
Note 2: No taxpayer is required to add their Medicaid-waiver payment to their AGI for purposes of
claiming EITC or the child tax credit. However, some taxpayers may be helped and some may be hurt by
this adjustment. The taxpayer has the right to do their return the way that is best for them as long as it
is lawful.
Background: Taxpayers who provide home-based healthcare for a family member and receive payment
from the state as Medicaid Waiver difficulty-of-care payments may benefit from a recent court ruling
(Feigh v Cmmr, 152 T.C. No.15). Pursuant to Notice 2014-7, some taxpayers who receive Medicaid-
waiver payments for home health care provided to an individual under a state Home and Community-
Based Services Waiver program may exclude such payments from their gross income. However, the
same taxpayer may choose to add their Medicaid-waiver payments back into their AGI as earned income
for the purpose of EITC and/or child tax credit eligibility and calculation.
Provide the EITC to taxpayers who have no other earned income;
Increase EITC for other taxpayers.
As a result of this ruling, taxpayers in this situation may:
1. Exclude the qualified Medicaid-waiver payments from their gross income; and/or
2. Include the qualified Medicaid-waiver payments in their earned income for tax-credit purposes.
Choosing to include the Medicaid-waiver payments as earned income may:
• Enable the child tax credit and additional child tax credit to be claimed for taxpayers who have
no other earned income;
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However, choosing to include the Medicaid-waiver payments may also decrease the amount of EITC in
some instances. These taxpayers may choose not to add the payments for EITC calculation. However, if
payments are included as earned income, they must be included in full (the client is not allowed to
include only part of the payments).
Taxpayers who are otherwise ineligible for the EITC - for instance, married taxpayers who file separately
or taxpayers without an SSN - will still not be able receive EITC under this provision.
If I am not mistaken, this clearly establishes that taxpayers may CHOOSE to include Medicaid Waiver Payments as earned income for the calculation of the CTC and ACTC while excluding it in the calculation of the EIC
