IRS Ruling on Difficulty of Care Tax Exemptions

New: For those who would like more information on what transpired with the Difficulty of Care Payment issue (i.e, income tax exemption for personal care), DSHS has just posted an update. (April 1, 2016)


When personal care services were moved into the Community First Choice (CFC) last July, an unintended consequence was that a federal tax rule that had allowed certain providers to claim an income exemption for personal care payments (classified as “difficulty of care”) could not be claimed under CFC.

To remedy this, the state requested a ruling by the IRS to allow the same exemption to continue for providers living at home with the person receiving services under the new CFC program.

Last week, the Washington State Department of Social & Health Services (DSHS) received a Private Letter Ruling from the IRS. The following statement from DSHS was provided to us when we asked for clarification:


The IRS has determined that payments made through the Community First Choice and the State Medicaid Personal Care programs for the provision of in-home supportive care to eligible recipients will be treated as “difficulty of care payments”. The payments are excludable from the gross income of the provider under section 131 of the tax Code. In general, DSHS clients who reside in their providers’ home are eligible recipients.

It is our understanding that this ruling applies to payments under these programs, regardless of the year in which they were made. If you think you  qualify for the exclusion in the 2015 tax year, you may want to consult  with your tax advisor or the IRS about how to claim the exclusion on your 1040 form or, if you have already filed your tax return, how to file an amended  form.

DSHS is working on a broader communication to all those affected by this ruling. That communication will include information about the process we will use to apply the exclusion during the 2016 tax year.


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