By the Unified Savers Editorial Team
Tax rules for IHSS providers involve federal IRS guidance and California CDSS policy. This article is for informational purposes. Consult a tax professional for advice specific to your situation. Rules may change — verify current guidance with your county IHSS office, the California CDSS website, or the IRS.
IHSS providers who live in the same home as the person they care for may be eligible to exclude their IHSS wages from federal gross income under IRS Notice 2014-7. To claim this exclusion, California IHSS providers must submit Form SOC 2298 — the IHSS/WPCS Provider Self-Certification — to their county IHSS office. Qualifying providers who complete this certification can legally exclude IHSS wages when calculating federal taxable income, which can significantly reduce the amount owed at tax time.
What Is IRS Notice 2014-7 and Who Does It Apply To?
In January 2014, the Internal Revenue Service issued Notice 2014-7, which classifies certain Medicaid waiver payments — including IHSS wages — as “difficulty of care payments” that are excludable from gross income under Section 131 of the Internal Revenue Code.
The key eligibility rule: the IHSS provider must live in the same home as the IHSS recipient they are providing services to. This is what distinguishes the qualifying payments from regular taxable wages.
Who typically qualifies:
- Parent providers caring for an adult child with a disability who lives in the parent’s home
- Adult child providers caring for an elderly or disabled parent who lives in the same home
- Spouse providers caring for a spouse with a qualifying disability in the shared home
- Other live-in providers who reside in the recipient’s home as a permanent household member
Who does NOT qualify:
- Providers who do not live with the recipient (they commute to the recipient’s home)
- Providers working through an IHSS registry who are not permanent residents of the recipient’s home
- Providers caring for recipients in licensed residential care facilities
If you do not live with your recipient, your IHSS wages are subject to federal income tax under standard rules.
The SOC 2298 Form: California’s Self-Certification Process
California CDSS created Form SOC 2298 (IHSS/WPCS Provider Self-Certification) specifically to document a provider’s eligibility for the IRS Notice 2014-7 exclusion.
Submitting the SOC 2298 does two things:
- It notifies California of your claim that you live with your recipient, which affects how your wages are reported to the IRS on Form W-2
- It serves as your documentation that you have self-certified your eligibility for the exclusion
How to get and submit the SOC 2298:
- Request the form from your county IHSS office or Public Authority
- The form is also available on the CDSS website under IHSS provider forms
- Complete it and submit to your county IHSS office — not to the IRS directly
- Keep a copy for your records
Effect on your W-2: Once your SOC 2298 is processed, California will issue you a revised or updated W-2 that reflects the exclusion of your IHSS wages from Box 1 (federal taxable wages). Some counties process this change prospectively (going forward) while others may be able to correct prior-year W-2s if you file the form retroactively.
If you have already received a W-2 that includes your IHSS wages in Box 1 and you believe you are eligible for the exclusion, you can still claim the exclusion on your federal tax return by excluding the wages from your gross income and attaching a written explanation citing IRS Notice 2014-7.
How the Exclusion Works on Your Federal Tax Return
When you qualify for the exclusion and have submitted your SOC 2298:
- Your IHSS wages are excluded from your federal gross income
- You do not report excluded IHSS wages on Line 1 of your Form 1040 (or report them and then subtract them on the next line with a note citing Notice 2014-7)
- The excluded wages reduce your adjusted gross income (AGI), which in turn reduces your federal income tax liability
This can have a significant practical impact. For an IHSS provider earning $20,000 per year in IHSS wages, excluding all $20,000 from federal gross income could eliminate thousands of dollars in federal income tax — potentially all federal income tax owed, depending on other income and filing status.
What the Exclusion Does NOT Cover
The IRS Notice 2014-7 exclusion is limited in scope. It does not:
- Eliminate Social Security and Medicare taxes (FICA). In most cases, IHSS wages remain subject to FICA withholding. However, parent providers caring for minor children may qualify for an additional FICA exemption under separate IRS rules — consult a tax professional for this scenario.
- Automatically exempt California state income tax. California has generally conformed to the federal Notice 2014-7 exclusion for state purposes, but verify current California conformity with CDSS or a tax professional, as state-level rules can change.
- Eliminate the need to file a tax return. Even if all your income is excluded, you may still need to file depending on your total income, filing status, and other factors.
- Apply retroactively without action. You must file the SOC 2298 to claim the exclusion going forward. Retroactive claims require additional steps and documentation.
Effect on Benefits: SSI, CalFresh, and Medi-Cal
The IRS exclusion affects income reported for federal tax purposes. However, benefit programs use their own income definitions:
- Supplemental Security Income (SSI): IHSS wages paid to a live-in provider are generally treated as earned income for SSI purposes even if federally excluded. The rules here are complex — contact the Social Security Administration for clarification specific to your case.
- CalFresh (food stamps): IHSS wages may or may not be counted as income for CalFresh depending on household composition and the specific nature of the payment. Check with your county’s CalFresh office.
- Medi-Cal: Medi-Cal uses MAGI (Modified Adjusted Gross Income) rules for most eligibility determinations, which generally align with federal income definitions. Excluded IHSS wages may not be counted for Medi-Cal income purposes — this is beneficial for maintaining Medi-Cal eligibility.
Frequently Asked Questions
Q: Do I need to submit the SOC 2298 every year?
A: Generally, no — once you submit the SOC 2298, the self-certification remains in effect as long as your living situation doesn’t change. You should re-certify or notify your county if you move out of the recipient’s home, as the exclusion would no longer apply. Some counties may ask for periodic re-verification; confirm the process with your county IHSS office.
Q: My IHSS wages were included in my W-2 Box 1. Can I still exclude them on my tax return?
A: Yes. If you lived with your recipient and are otherwise eligible, you can exclude qualifying IHSS wages from your federal gross income on your tax return even if they appear in W-2 Box 1. Attach a written statement to your return identifying the wages as Medicaid waiver payments excludable under IRC Section 131 and IRS Notice 2014-7. The IRS accepts this approach. Consider having a tax professional assist you with this to ensure proper documentation.
Q: Does the exclusion affect my eligibility for the Earned Income Tax Credit (EITC)?
A: This is one of the most important considerations of the exclusion. The EITC is calculated based on earned income. If your IHSS wages are excluded from gross income, they may also not count as “earned income” for EITC purposes — which could reduce or eliminate your EITC. This trade-off means the exclusion is not always beneficial for every provider. Calculate your taxes both ways — with and without the exclusion — before deciding, or work with a tax professional who understands this specific issue.
Related Resources on Unified Savers:
- IHSS Provider Tax Information — General overview of how IHSS wages are taxed
- IHSS Provider Tax Information (Updated) — 2026 tax filing update for IHSS providers
- IHSS Back Pay Rules California — How retroactive pay works and how it’s taxed
- IHSS Union Benefits SEIU 2015 — Health and retirement benefits available to eligible providers
- How to Become an IHSS Provider — Full enrollment process for new providers