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STATE OF WASHINGTON

DEPARTMENT OF SOCIAL AND HEALTH SERVICES

Aging and Long-Term Support Administration

Home and Community Services Division

PO Box 45600, Olympia, WA 98504-5600

H16-032 - Policy and Procedure

April 6, 2016

|TO: |Home and Community Services (HCS) Division Regional Administrators |

| | |

| |Area Agency on Aging (AAA) Directors |

| | |

| |Developmental Disabilities Administration (DDA) Regional Administrators |

|FROM: |Bea Rector, Director, Home and Community Services Division |

| | |

| |Don Clintsman, Deputy Assistant Secretary, Developmental Disabilities Administration |

|SUBJECT: |IRS Private Letter Ruling (PLR) regarding Notice 2014-7, Difficulty of Care Payments Excludable from Income |

|Purpose: |To notify staff that Washington has received a Private Letter Ruling from the Internal Revenue Service (IRS) |

| |on Difficulty of Care Payments. The Ruling expands the income tax exclusion to providers of clients served |

| |by Medicaid state plan programs. |

|Background: |On January 1, 2014, the IRS issued Notice 2014-7 which allowed providers to exclude most income earned |

| |through the provision of waiver personal care services in specific situations when the provider and client |

| |live in the same household. This income exclusion applied only to those payments for personal care to clients|

| |served through waivers. The exclusion does not apply to payments made for respite care or paid time off. |

| | |

| |On July 1, 2015, at the direction of the Washington State Legislature, the majority of personal care services|

| |were moved to the Community First Choice (CFC) program. The IRS would not definitively say that Washington |

| |could broaden the application of the income exclusion to eligible providers under the CFC program. Because |

| |of the position taken by the IRS, payments made under the CFC program were not excluded from income reported |

| |to the IRS beginning July 1, 2015. |

|WHAT’S NEW, CHANGED, OR |DSHS formally submitted a Private Letter Ruling request to the IRS. The request described the similarities |

|CLARIFIED: |among Washington’s waiver, CFC and State Plan Medicaid Personal Care programs. DSHS asked the IRS to allow |

| |Washington State to apply the tax exclusion to payments made under both the CFC and the State Plan Medicaid |

| |Personal Care (MPC) programs. |

| | |

| |On March 18, 2016, the IRS agreed with Washington’s position and ruled that the tax exclusion should be |

| |extended to providers serving clients under the CFC and MPC programs. The tax exclusion can now be applied |

| |to payments made under these programs in addition to payments made under waiver programs. |

| | |

| |The exclusion applies to all open tax years, including 2015, where criteria for this exclusion are met. |

| | |

| |DSHS will not issue corrected tax documents for tax year 2015 or prior. |

| | |

| |This Information will be provided to all IPs through direct mailing and emails and to Adult Family Homes |

| |through a Dear Provider Letter. |

|ACTION: |Direction to staff and providers about the 2016 tax year will be made available at a later date. When the |

| |process with the payment system vendor is finalized, this MB will be re-issued and will contain instructions |

| |for tax year 2016. |

| | |

| |In the meantime please use the following information to assist with questions about Difficulty of Care |

| |Payments and the IRS Private Letter Ruling. |

| | |

| |If clients or providers have questions about the ruling, they may access information at: |

| |The ALTSA “Becoming a Paid Caregiver” site: |

| |Go to: |

| |Click on: IRS Notice 2014-7, Difficulty of Care Payments Excludable from Income; or |

| |The ATLSA “Information for Adult Family Home Providers” site: |

| |Go to: |

| |Click on: IRS Notice 2014-7, Difficulty of Care Payments Excludable from Income; or |

| |The IPOne FAQ site, in the “Changes” tab: |

| |Got to: |

| |In the question shown below, the word “here” links to the information page |

| |Q: What information is available regarding the IRS Notice 2014-7, Difficulty of Care Payments Excludable |

| |from Income? or |

| |Information on this ruling is available here. |

| |The DDA website: |

| |Go to: where the link to the information page will be available in the “Latest |

| |News” section for about one month |

| |In early May, this link will be moved for permanent placement to: |

| |

| |r-information |

| |The DDA “Residential Provider Resources” site: |

| |Go to: |

| |Click on: IRS Notice 2014-7, Difficulty of Care Payments Excludable from Income |

| |Staff are prohibited from providing tax advice to clients or providers. Instead, the provider or client may:|

| |Contact their tax advisor or the IRS. |

| |Contact the DSHS Tax Desk at: |

| |(360) 664-5830 – Lacey/Olympia |

| |(866) 563-8155 – Toll free |

| |taxinfo@dshs. |

| |Consult the IRS Questions and Answers publication located at: |

| |. |

| |Question #11may be helpful to taxpayers filing or amending 2015 taxes. |

|Related |Difficulty of Care Payments – Washington State Private Letter Ruling |

|REFERENCES: |[pic] |

| | |

| |MB H14-056 |

| |IRS tax reporting rule changes that may affect Individual Providers who live with client receiving personal |

| |care services through qualified 1915(c) waiver programs |

|CONTACT(S): |Stacy Graff, IP Program Manager |

| |(360) 725-2533 |

| |stacy.graff @dshs. |

| | |

| |Jaime Bond, DDA State Plan Services Unit Manager |

| |360-725-3525 |

| |Jaime.Bond@dshs. |

| | |

| |Jennifer Smith, HCS IPOne Program Manager |

| |(360) 725-2551 |

| |Jennifer.Smith@dshs. |

| | |

| | |

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