The income can be exempt BUT it can also be claimed as taxable if it is beneficial for you to do so. (For the purposes of claiming the EIC and other refundable credits) US TAX COURT ruled in Feign v. Commissioner that Medicaid Waiver Payments are not necessarily nontaxable. The Court said that Notice 2014-7 does not follow the plain reading of the statute. The Feigns sued because they felt they were denied tax credits since the income was not taxed, so the Court allowed the Feigns to receive Earned Income Tax Credit and Child Tax Credit. The result of this Court Case is that Notice 2014-7 is now optional. IHSS income can be included as taxable income and you can claim credits such as Earned Income Tax Credit, Retirement Savings Credit, Child Tax Credit, etc. IF it is advantageous for you to do so. If you have any questions, please contact a qualified tax practitioner.
