Hello Denasha1,
There are certain requirements that must be met in order to claim difficulty of care payments.
On January 3, 2014, the Internal Revenue Service issued Notice 2014-7, 2014-4 I.R.B. 445 which provides guidance on the federal income tax treatment of certain payments to individual care providers for the care of eligible individuals under a state Medicaid Home and Community-Based Services waiver program described in section 1915(c) of the Social Security Act (Medicaid Waiver payments).
This program enables individuals who otherwise would require care in a hospital, nursing facility, or intermediate care facility to receive care in the individual care provider's home. The notice provides that the Service will treat these Medicaid waiver payments as difficulty of care payments excludable from gross income under § 131 of the Internal Revenue Code.
If you receive a W2 for these services, there is a screen called "Let's Check For Uncommon Situations" just after the W2 entry screens in the TurboTax program. You will check the box for "Non taxable Medicaid waiver payments that qualify as difficulty of care payments" to exempt this income from taxation.
If you receive a 1099-Misc, there is a similar screen "Does one of these uncommon situations apply?" that will allow you to check "This income is a Medicaid waiver payment that qualifies as a difficulty of care payment" in order to exempt from taxation.
Here is an IRS link that may be helpful to you: Certain Medicaid Waiver Payments May Be Excludable From Income
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