The Internal Revenue Service has announced a new policy that will exempt parents of adult individuals in the Illinois Home-Based Program from payment of taxes on income the parents receive for providing care. It's quite a major development. This morning I spoke with The principal author of this notice Victoria J. Driscoll of the Office of Associate Chief Counsel ( & Accounting). She informed me that the is working on questions and answers regarding this notice and will be posting to their website very soon.The Family Support Network is sharing this information with you for Informational purposes only – we are not tax experts! If you have questions about this new policy, you should consult a lawyer or financial adviser and watch for updates.
I have attached copy of this notice. Click on the following link to read the notice:http://gallery.mailchimp.com/bcec73d19574f43e0b9ab00c1/files/Notice_2014_7__2014_4_IRB____IRC_Sec_s___131__01_03_2014.doc_1_.pdf
This is a Big Deal! In order to help us to understand what this means – I have reached out to Brian Rubin, a parent of a Special needs adult, a Former IRS Agent and Former IRS Attorney. Please read below Mr. Rubin’s observation of this notice:
Notice 2014-7, 2014-4 IRB, 01/03/2014, IRC Sec(s). 131
1. The notice is stating that the IRS is reversing its long standing position on these payments by “stretching” (for lack of a better term) the language in IRS Code Section 131 which relates to “foster care” payments to Medicaid waiver payments. The notice concludes that if the services are provided in the home of the care provider, it doesn’t matter if the care provider is related or not related to the individual. The notice also stretches to reach the conclusion that the notice would what is commonly referred to as the “agency model” where, as an example; the parent is the care provider.
2. Be aware that just because the IRS excludes the payments from “federal” Income Tax does not
preclude the State from electing to include them, tax them for State Income Tax. Since the Illinois starts with the Federal Adjusted Gross Income (AGI), it would have to be “added back”, as other federal not taxable income, but state taxable income, are already done. I believe this would require Illinois legislation.
3. If the payments are subject to FICA (Social Security Tax) and/or FUTA (Federal Unemployment Tax) was specificallynot
addressed in the notice. The notice states: “This notice does not address whether qualified Medicaid payments excluded from income under this notice may be subject to tax under the Federal Insurance Contributions Act (FICA) or the Federal Unemployment Tax Act (FUTA) in certain circumstances
”. Further, the notice obviously does not
address or State Unemployment Tax.
4. While the notice is “effective” for payments received after January 3, 2014, the notice specifically provides that “taxpayers may apply this notice in taxable years for which the period of limitation on claims for credit or refund under IRS Section 6511 has not expires
.” That is generally three years.
Rubin Law, a professional corporation \ Special Needs Legal & Future Planning
President, The Arc of Illinois
Member of the Board of Directors of Pact, Inc. and Clearbrook
Commissioner, State of Illinois Guardianship and Advocacy Commission
Chairman, State of Illinois Autism Task Force
Member of the Board of Directors of the Special Needs Alliance
\ 847.279.7999 \ toll free 866.to.rubin (867.8246) \ fax 847.279.0090
1110 West Lake Cook Road, Buffalo Grove, Illinois 60089-1997
Stay tuned – we are following this closely and will keep you updated!