We recently had a home health care firm customer describe a situation to us. They have an health care provider who takes care of an individual in their own (the health care provider’s) home. The individual is not related. The State pays the home health care firm funds to provide the care to the individual. The firm pays the health care provider for caring for the individual. Their question to us….Is this a W-2 or 1099 situation?
As it turns out, neither.
In Tennessee, this situation falls under the Family Model Residential Support funding program. The person needing the care is living in the home of the care giver. The care giver is the one in control. The home health firm is not telling the care giver when, where, what or how the care giver is to perform. Thus this is not a W-2 situation because this is not an employee/employer relationship.
So then why does the care giver not get a 1099?
This situation also falls under a “difficulty of care” situation and thus classified under Foster Care payments.
In Feb 2014, the IRS published guidance (Notice 2014-7 effective 1/3/14) which allows foster care providers to exclude reporting “difficulty of care” payments, regardless of whether they are biologically related to the individual in foster care. This represents a significant change for the IRS, which has previously excluded biological relatives receiving qualified Medicaid waiver payments from the definition of “foster care provider” under IRC Section 131.
Section 131(c) defines a “difficulty of care” payment as compensation to a foster care provider for the additional care required because the qualified foster individual has a physical, mental, or emotional handicap. Qualified Medicaid waiver payments compensate a care provider for providing the additional care required because of an eligible individual’s physical, mental, or emotional handicap for which a state has determined that there is a need for additional compensation. Thus, the treatment of qualified Medicaid waiver payments as “difficulty of care” payments is consistent with the definition under § 131(c).
According to the IRS re: Difficulty-Of-Care payments:
Do not use Form 1099-MISC to report difficulty-of-care payments that are excludable from the recipient’s gross income. Difficulty-of-care payments to foster care providers are not reportable if paid for fewer than 11 children under age 19 and fewer than six individuals age 19 or older. Amounts paid for more than 10 children or more than five other individuals are reportable on Form 1099-MISC.
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