Notice 2014-7 Affecting Refund Amount.....

[ericag9218-gmail]

Would me filing Notice 2014-7 affect the amount that I could possibly receive back from my tax return (I have no other income currently)? I have 2 dependents (70 years old and 11 years old). I know I don't have to file this income as self-employment and that I'm not subject to self-employment taxes because it is a Medicaid program that I receive the 1099 form for. I'm just not understanding if it affects what I would receive back on my return for a refund amount or if I wouldn't receive anything at all since it's not considered self-employment. 

[rschule1]

Hi There:

Clearly you have a good feel for the issue at hand. Here's a little tidbit re: earned income credit for you to consider (if applicable).  Also please consider all avenues of tax law before making a decision.

Feigh vs. Commissioner

Feigh v. Commissioner concluded that Medicaid waiver payments were earned income. This means, in the context of a W-2 person and the earned income credit (EIC), earned income is compensation received as an employee (for example wages), but only if the amount is included in gross income for the tax year. Medicaid waiver payments that may be excluded from income under Notice 2014-7 may still be treated as earned income for purposes of the EIC. 

[VincentL · Accepted solution]

Notice 2014-7, which was issued by the IRS, explains that, as of January 3, 2014, the IRS will treat certain Medicaid waiver payments as difficulty of care payments excludable from gross income under section 131 of the Internal Revenue Code. This treatment applies, regardless of the individual care provider’s relationship to the person receiving the care, as long as:

• the individual care provider has the same home as the eligible person receiving care AND to the extent that
• the number of qualified individuals being cared for is not more than 10, if the qualified individuals are age 18 and under OR
• the number of qualified individuals being cared for is not more than 5, if the qualified individuals are age 19 or over.

Since you do not claim the income as taxable and there is no withholding, you would not receive a refund.