Difficulty of Care Payments
What is it?
The Internal Revenue Service recently determined that certain MassHealth payments to a PCA for personal care services provided to a Consumer who resides in the same home as the PCA are considered “difficulty of care payments” and may be excluded from federal and state income taxes, in accordance with the guidance in the ruling.
For details, visit the IRS website, Certain Medicaid waiver payments may be excludable from income | Internal Revenue Service
Am I eligible?
Eligibility is based on three statements:
- I supply services to the Consumer/Waiver Participant in my home.
- I do not have a separate home where I live.
- This is the home where I live and regularly perform the routines of private life, including meals and holidays with family.
If you can positively answer all three, you are eligible for the Difficulty of Care Federal Income Tax Exclusion.
Is there anything I need to do to claim the Difficulty of Care exclusion?
Any PCA who qualifies for this tax exclusion may complete the Application for the Difficulty of Care Federal/State Income Tax Exclusion.
If eligible, return the application to Tempus using one of the below methods indicated on the bottom of the form.
Please submit this Application to Tempus FI no later than December 1, 2025, for it to be in effect on January 1, 2026.
If the Application is submitted after December 1, 2025, Tempus FI will process applications on a rolling basis and will deduct federal and state income taxes until such time as the exclusion has been processed into the payroll system. All applications will be processed with prospective payments tax exempted.
How will these wages appear on my W-2?
In 2026, if you have the exclusion, your Federal (Box 1) and State (Box 16) taxable wages will appear reduced by the exclusion amount. If you use the exclusion from the beginning of the year, these boxes will likely be $0.00. The amount of excluded wages will appear in Box 12 using code II.
Why wasn’t the exclusion available to me before now?
Difficulty of Care exclusions have existed since 2014, however they only applied to waiver programs. Massachusetts recently received a special ruling that allows the application in non-waiver programs like Fee for Service, Senior Care Options, One Care and PACE.