Before you read on: this article is general information, not tax advice, and IHSS Connect is not a tax firm. Every household’s situation is different, so please talk to a tax professional before you file or amend anything. Free help is listed near the end of this article.
If you are a live-in IHSS provider who filed a SOC 2298, your wages stopped being taxable income. A lot of providers reasonably conclude that they therefore have no “earned income” — and that the Earned Income Tax Credit and the refundable part of the Child Tax Credit are simply not available to them. That conclusion has been wrong since 2019, and for a provider supporting children it can be worth thousands of dollars a year.
This article explains what changed, why counting the payments is a choice rather than an automatic benefit, how California handles it differently from the federal government, and how far back you can go to fix prior years.
IHSS Connect is a publication, not a tax firm. Nothing here is tax advice for your situation. Do not amend a return based on this article — take it to a tax preparer. Free options are listed near the end.
Start here
- Filing a SOC 2298 does not disqualify you from the EITC or the refundable Child Tax Credit.
- You may choose to count your excluded IHSS wages as earned income for those credits — all of them, or none. There is no partial option.
- It is not automatically better. For some households counting the wages raises the credit; for others it pushes income past the phase-out and shrinks it. It has to be run both ways.
- California is a separate decision. You may answer it differently on your state return than on your federal return.
- Past years may still be fixable. Federal claims generally run three years; California runs four.
Why the SOC 2298 creates the problem
The SOC 2298, the Live-In Self-Certification Form, tells the state that you live in the same home as the person you care for. Once it is on file, CDSS excludes your IHSS wages from federal and state income tax. Your Form W-2 comes back with nothing in box 1. Starting with recent tax years, the excluded amount shows up instead in box 12 with the code II, which the IRS defines as “Medicaid waiver payments excluded from gross income under Notice 2014-7.”
That is good news for your tax bill. The complication is that the two largest refundable credits available to working families are both built on earned income:
Earned Income Tax Credit
Calculated directly from earned income. With no earned income on the return, the credit is zero.
Rises with income to a peak, then phases back down to zero.
Additional Child Tax Credit
The refundable part of the Child Tax Credit — the part you can receive even when you owe no tax.
Pays nothing below $2,500 of earned income. Above that, 15% of earned income over $2,500, up to $1,700 per qualifying child (tax year 2025).
So a live-in provider whose only income is IHSS, with a box 1 of zero and nothing else on the return, appears on paper to have no earned income at all. Under that reading, both credits come out to zero. That was in fact the IRS’s position for several years.
Worth knowing: This only bites if IHSS is your only earned income. If you or a spouse also have a regular taxable job, you already have earned income on the return, and the question becomes whether adding the IHSS wages on top helps or hurts.
What the Feigh decision changed
In Feigh v. Commissioner, decided May 15, 2019, the United States Tax Court rejected that reading. The court held that the IRS could not use Notice 2014-7 — a sub-regulatory notice, not a statute — to take away a benefit Congress had written into law. Payments that meet the ordinary definition of earned income remain earned income for credit purposes even though the notice excludes them from taxable income.
The IRS did not appeal the point. In Action on Decision 2020-02 it acquiesced in result, stating that it “will not argue that payments that otherwise fall within the definition of earned income … are not earned income for determining eligibility for the EIC and the ACTC merely because they are excludable under the Notice.”
The rule now appears in the IRS’s own published guidance, which says you may choose to include all, but not part, of these payments in earned income when figuring the Earned Income Tax Credit or the Additional Child Tax Credit. CDSS repeats the same language on its live-in provider page. This is settled ground, not an aggressive filing position.
Flag 🚩: The IRS acquiesced “in result only,” meaning it accepts the outcome without endorsing all of the court’s reasoning. That distinction matters to tax lawyers, not to your return — the IRS now states the rule itself in its own taxpayer guidance, which is what a preparer will rely on.
Counting the payments is a choice, not an automatic win
The EITC rises with earned income up to a peak and then phases back down to zero. Adding a year of IHSS wages to a return that already has other income can move a household past the top of that range, so the same election that helps one family costs another family money. The only way to know is to compute the return both ways — which is a normal thing to ask a preparer to do, and something most tax software can handle.
These are the tax year 2025 figures. The amounts change every year, so confirm the current ones before relying on them:
Federal EITC — tax year 2025
| Qualifying children | Maximum credit | Limit — single or head of household | Limit — married filing jointly |
|---|---|---|---|
| Qualifying childrenNone | Maximum credit$649 | Single or head of household$19,104 | Married filing jointly$26,214 |
| Qualifying childrenOne | Maximum credit$4,328 | Single or head of household$50,434 | Married filing jointly$57,554 |
| Qualifying childrenTwo | Maximum credit$7,152 | Single or head of household$57,310 | Married filing jointly$64,430 |
| Qualifying childrenThree or more | Maximum credit$8,046 | Single or head of household$61,555 | Married filing jointly$68,675 |
Investment income above $11,950 disqualifies you for 2025 regardless of anything else. These amounts are adjusted every year — confirm the current figures before relying on them.
For the Child Tax Credit, tax year 2025 is worth up to $2,200 per qualifying child, of which up to $1,700 per child is refundable through the Additional Child Tax Credit. Because the refundable part is 15 percent of earned income above $2,500, a provider needs roughly $13,833 of earned income to reach the full $1,700 for one child. For many full-time live-in providers, a year of IHSS wages clears that easily — but only if those wages are counted.
California is a separate decision, and you can answer it differently
California has its own earned income credit. The Franchise Tax Board’s instructions for Form FTB 3514 address IHSS directly: “You may elect to include or exclude your Medicaid waiver payments or IHSS payments if the payments are nontaxable for federal purposes.” The same all-or-nothing rule applies — “Each must elect to include or exclude all such payments, not just a portion of them.”
The part that surprises people is the next sentence: “You may elect to include or exclude such payments from earned income for California EITC purposes, whether or not you elect to include or exclude them for federal purposes.” The state and federal elections are independent. If counting the wages helps you federally but hurts you on the state return, or the reverse, you are allowed to split the decision.
Federal return
IRS — EITC and ACTC
- The election
- Include all, or none, of the excluded payments in earned income.
- 2025 income ceiling
- Up to $68,675 depending on filing status and number of children.
- Also unlocks
- Additional Child Tax Credit, up to $1,700 per qualifying child.
California return
FTB — CalEITC and YCTC
- The election
- Same all-or-none choice, made on line 14 of Form FTB 3514.
- 2025 income ceiling
- Earned income and federal AGI both under $32,901.
- Also unlocks
- Young Child Tax Credit, up to $1,189 with a child under six.
The two are independent. FTB states you may elect to include or exclude the payments for CalEITC “whether or not you elect to include or exclude them for federal purposes.” Because California’s ceiling is so much lower, the right answer often differs between the two returns.
On the 2025 form, the mechanics run through line 14 of Form FTB 3514. Leaving line 14 blank counts the payments; entering the amount on line 14 takes them out. For 2025, both earned income and federal adjusted gross income must be under $32,901 to qualify for CalEITC. Qualifying for CalEITC with a child under six also opens the Young Child Tax Credit, worth up to $1,189, which begins phasing out above $27,425 of earned income.
Worth knowing: Because the CalEITC income ceiling is far lower than the federal one, it is common for the right answer to differ between the two returns. This is the single most useful reason to have someone run the numbers rather than guessing.
How far back you can go
If you have already filed returns that left these credits on the table, you may be able to claim them by amending. The two governments give you different amounts of time.
- Federal: generally three years from the date you filed the return, or two years from the date you paid the tax, whichever is later.
- California: the later of four years after the original due date, four years after the date of a timely filed return within the extension period, or one year from the date of overpayment.
Roughly, that produces the following. Treat these as orientation, not as your dates:
Approximate windows to claim a missed credit
| Tax year | Federal — approximate | California — approximate |
|---|---|---|
| 2022 | Generally closed — see the storm note below | Around April 2027 |
| 2023 | Around April 2027 | Around April 2028 |
| 2024 | Around April 2028 | Around April 2029 |
| 2025 | Around April 2029 | Around April 2030 |
Federal: generally three years from the date the return was filed, or two years from the date the tax was paid, whichever is later. California: the later of four years after the original due date, four years after a timely return filed within the extension period, or one year from the date of overpayment.
The 2022 storm postponement, which is time-sensitive
In 2023 the IRS postponed the filing deadline for 55 of California’s 58 counties — every county except Lassen, Modoc, and Shasta — moving 2022 individual returns originally due April 18, 2023, all the way to November 16, 2023. Because the federal three-year clock generally runs from the date a return was actually filed, a California provider who filed a 2022 return in the fall of 2023 may still be inside the federal window as of this writing, even though a provider who filed on time in April is not.
Your 2022 federal year may still be open — and may not be for long
- In 2023 the IRS postponed the deadline for 55 of California’s 58 counties — all except Lassen, Modoc, and Shasta — moving 2022 returns from April 18 to November 16, 2023.
- The federal three-year clock generally runs from the date the return was actually filed, so a provider who filed in the fall of 2023 may still be inside the window when a provider who filed in April is not.
Whether your 2022 year is open turns on your actual filing date and on how the postponement interacts with the refund lookback rules. That is a technical question we cannot answer for you. If 2022 could matter for your household, treat it as urgent and see a preparer now rather than in the spring.
The California window for 2022 stays open considerably longer either way.
If you have not been filing at all
Some live-in providers stop filing returns entirely, on the logic that excluded wages produce no taxable income and therefore no filing requirement. That can be true and still be a costly choice, because refundable credits are only paid to people who file for them. If you have children and your IHSS wages are your household’s main income, filing a return may produce a refund even in a year when you owe nothing. The same deadlines above apply to filing a late original return to claim a credit.
Talk to a preparer first, and it does not have to cost anything
We want to be plain about this: IHSS Connect does not prepare taxes, and the difference between a helpful election and a costly one comes down to arithmetic on your specific return. Free and low-cost help exists and is designed for exactly this income range.
- VITA (Volunteer Income Tax Assistance). IRS-certified volunteers prepare returns at no charge, generally for people making about $69,000 or less, and specifically including people with disabilities and people with limited English. Find a site at 800-906-9887 or through the IRS site locator. Sites can also prepare amended returns, though not every location does — ask when you call.
- TCE and AARP Tax-Aide. Free preparation aimed at taxpayers 60 and older. AARP Tax-Aide can be reached at 888-227-7669.
- Low Income Taxpayer Clinics. If the IRS has already denied a credit, sent you a notice, or is auditing you, LITCs represent people for free or a small fee when income is below 250 percent of the federal poverty guidelines. IRS Publication 4134 lists them; the Taxpayer Advocate Service hosts a clinic finder.
What to bring to your appointment
Bring one set for each year you want reviewed.
- Your Form W-2 from IHSS for each year in question, including any showing a code II amount in box 12.
- A copy of the SOC 2298 you filed, and the date you filed it.
- The returns you already filed for those years, if you have them.
- Names, Social Security numbers, and dates of birth for every child you are claiming.
- Proof that you and the recipient share an address — a lease, a utility bill, or a license.
Hand them this sentence: “Please compare my EITC and Additional Child Tax Credit with and without the Medicaid waiver payment election, federally and for CalEITC separately.”
Free help exists for exactly this
IHSS Connect does not prepare taxes. These programs do, at no cost.
- VITA IRS-certified volunteers, generally for people making about $69,000 or less, and specifically including people with disabilities. Ask when you call whether the site handles amended returns. 800-906-9887
- TCE & AARP Tax-Aide Free preparation aimed at taxpayers 60 and older. 888-227-7669
- Low Income Taxpayer Clinics If the IRS has denied a credit, sent a notice, or opened an audit. Free or low cost below 250% of the federal poverty guidelines. IRS Publication 4134
Nothing in this article is tax advice for your situation. Do not amend a return based on it — take it to a preparer.
What this does not change
- It does not change your FICA. CDSS is explicit that the SOC 2298 “only applies to Federal and State wages, it doesn’t apply to FICA and Medicare.”
- It does not create the exclusion. Notice 2014-7 only covers care given in the home where the provider actually lives. A provider who keeps a separate home and stays at the recipient’s house most nights does not qualify, according to the IRS’s own questions and answers.
- It does not affect your IHSS hours or your Medi-Cal. The election is a tax return calculation. It does not change your assessment, your authorized hours, or the recipient’s eligibility.
- It is not a loophole. It is a rule the IRS publishes on its own website and CDSS repeats on its own page. You are not doing anything clever by asking about it.
Sources
- IRS Notice 2014-7 — the ruling treating live-in Medicaid waiver payments as difficulty-of-care payments excludable under Internal Revenue Code section 131, and the requirement that care be given in the provider’s own home.
- IRS — Certain Medicaid waiver payments may be excludable from income — the “all, but not part” election language, the shared-home questions and answers, Form 1040 line 1d, Form W-2 box 12 code II, and amended-return guidance.
- Feigh v. Commissioner, 152 T.C. No. 15 (May 15, 2019) — the Tax Court decision holding that the IRS could not use Notice 2014-7 to strip excluded payments of their character as earned income.
- IRS Action on Decision 2020-02 — the IRS’s formal acquiescence in result to Feigh.
- CDSS — Live-In Provider Self-Certification — SOC 2298 and SOC 2299, the FICA and Medicare limitation, and CDSS’s own description of the earned-income election.
- FTB — 2025 California Earned Income Tax Credit Booklet (Form FTB 3514 instructions) — the line 14 election, the independence of the California choice, the CalEITC income limit, and Young Child Tax Credit amounts.
- FTB — Claim for refund — California’s four-year deadline for filing a refund claim.
- 26 U.S. Code § 6511 — the federal three-year window for claiming a credit or refund.
- IRS — EITC tables — tax year 2025 maximum credits, income limits, and the investment income limit.
- IRS — Child Tax Credit — the $2,200 credit, the $1,700 maximum refundable amount per child, and the $2,500 earned income threshold.
- IRS — Instructions for Schedule 8812 — the 15 percent formula and the earned income worksheet covering Medicaid waiver payments.
- IRS — For California storm victims, IRS postpones tax-filing and tax-payment deadline to Nov. 16 — the 2023 postponement covering 2022 returns in 55 of California’s 58 counties.
- IRS — Free tax return preparation for qualifying taxpayers — VITA and TCE eligibility, the site locator, and the phone numbers listed above.
- Taxpayer Advocate Service — Low Income Taxpayer Clinics — what LITCs do, who they serve, and IRS Publication 4134.
IRS guidance and CDSS are the primary authorities throughout; Feigh v. Commissioner and Internal Revenue Code section 6511 are the underlying law. Dollar figures are tax year 2025 and are adjusted annually. Where a preparer’s reading of your specific facts differs from the general rules described here, your facts govern.
Important — this is not tax advice
Please read this before acting on anything above.
IHSS Connect is an independent publication. We are not a tax preparation firm, an accounting firm, or a law firm. No one involved in producing this article is a Certified Public Accountant, an enrolled agent, a tax attorney, or a financial advisor, and nothing here should be read as though we were.
This article is provided for general educational and informational purposes only. It describes rules in general terms, for a general audience, as they stood at the time of writing. It is not tailored to your household, your income, your filing status, your household composition, or any other fact about you — and those facts are exactly what determine the right answer on a tax return.
Reading this article does not create any professional, advisory, or fiduciary relationship between you and IHSS Connect.
Before you act
- Do not file, amend, or change a tax return based on this article alone.
- Take your own situation to a qualified tax professional — a CPA, an enrolled agent, or a tax attorney — or to one of the free programs listed above.
- Understand that filing incorrectly can carry real consequences, including denied credits, repayment of refunds you have already received, interest, and penalties.
On accuracy. Tax law, dollar thresholds, and filing deadlines change, and sometimes change retroactively. Dollar figures in this article are tax year 2025 unless stated otherwise. We researched this article carefully and linked every source so that you can check our work, but we cannot guarantee it is complete, current, or free of error, and we do not revise published articles as the law changes. Everything here is provided as is, without warranty of any kind, express or implied.
On outside links. Links to the IRS, CDSS, the Franchise Tax Board, and other organizations are offered for your reference. We do not control those sites and are not responsible for their content. Where anything in this article conflicts with the IRS, the FTB, or CDSS, the agency is right and we are wrong.
On IHSS itself. Nothing in this article changes your IHSS eligibility, your authorized hours, or your benefits, and nothing here should be used in place of guidance from your county. For questions about your case, contact your county IHSS office.
To the fullest extent permitted by law, IHSS Connect and its contributors accept no liability for any loss, penalty, or damage arising from reliance on this article.
