Action Required – Federal Tax Changes Coming to Your CDASS Paycheck
This only affects people who have CDASS live-in caregivers who have been exempt from paying taxes on caregiving income. If your caregivers are not living with you, this does not affect you.
What’s Changing
CDASS live-in and family caregivers will lose their Difficulty of Care (DOC) federal tax exemption when care recipients transition from HCBS waivers to Community First Choice (CFC). This transition began July 1, 2025, and will continue through June 30, 2026.
Starting when the CDASS Medicaid client’s services move to CFC after their next Annual Level of Care Recertification, also known as a Continued Stay Review (CSR), federal income taxes will be withheld from the caregivers’ paychecks. However, if you have a live-in caregiver on Medicaid, you can still protect their Medicaid eligibility by ensuring that you retain your waiver. If you do not use other waiver services that are not part of CFC, you can stay on the waiver by using the new Wellness Education Benefit.
Please note that you cannot challenge the end of your CDASS caregiver’s DOC federal tax exemption through Medicaid appeals.
Why This Is Happening
The IRS regulation for the DOC tax exemption applies only to care under Home and Community-Based Services (HCBS) waivers, not services provided in regular Medicaid. CFC moved some services, including all those provided through CDASS, from waivers to regular Medicaid. There are several reasons why we want services such as personal care, homemaker, and health maintenance services to be a state plan benefit, which we shared in a recent CCDC Town Hall Meeting.
There is hope: Colorado Medicaid leadership has requested that the IRS include the DOC exemption for CFC programs. As CFC was being planned, they anticipated a positive response based on the experience of other states that have already implemented CFC. California and Washington have already received similar approvals. The IRS may still grant this exemption, but we do not know when or if this will happen.
If approved, the ruling would be retroactive to July 1, 2025, allowing for refunds through amended tax returns.
If you have a live-in caregiver working with an agency, contact your agency to learn the impact of this DOC change on your caregiver’s income.
Protecting Your CDASS Live-In Caregiver’s Medicaid Eligibility
If you have a live-in caregiver who receives Modified Adjusted Gross Income (MAGI) Medicaid, they can continue to qualify for DOC protection for Medicaid eligibility purposes even after you transition to CFC. MAGI Medicaid is also known as “expansion” Medicaid or “Obamacare Medicaid.” It is Medicaid for people who are not disabled, and not parents of young children.
How the Wellness Education Benefit Protects You
There are several reasons, one of which is noted here, for people to continue on a Medicaid waiver. To be on a waiver, you must use a waiver service each month. Many people use CDASS as their sole waiver service and do not utilize other services. These people would have lost waiver eligibility once they moved to CFC. HCPF specifically created the Wellness Education Benefit (WEB) to ensure that all clients can maintain waiver eligibility. ere’s how it works:
While you must transition your CDASS services to CFC, you can keep your HCBS waiver active by signing up to receive a new waiver benefit: the Wellness Education Benefit, a monthly mailer with health and Medicaid information.
This allows the CDASS live-in caregiver to continue meeting all three DOC requirements for Medicaid eligibility:
- Provide care for someone on an HCBS waiver program (maintained through Wellness Education Benefit).
- Live in the same home as the person they care for.
- Get paid through approved providers (IHSS, CDASS, Home Care/Health Agency, or PASA).
These requirements apply to the Medicaid eligibility calculation for the live-in caregiver, which is separate from federal income tax considerations. ven if you lose the federal tax exemption, as a live-in caregiver, you can still exclude this income when determining your eligibility for Medicaid, provided the client maintains their waiver through the Wellness Education Benefit.
Take Action Now
- Contact the Case Manager Immediately:
- Find out when your next Annual Level of Care Recertification is scheduled
- Confirm that you will keep your waiver through the Wellness Education Benefit. urthermore, ensure that your waiver status and WEB enrollment are documented in writing, such as in an email, on your task worksheet, or in your annual service plan.
- Emphasize that this is critical for the Medicaid eligibility of the CDASS live-in caregiver on MAGI Medicaid
- Contact your FMS provider to review and update your tax withholding before the transition:
Palco: 866-710-0456 | CO-CDASS@palcofirst.com | www.palcofirst.com/colorado
- Hours: Monday-Friday, 8:00 AM – 5:00 PM
Public Partnerships LLC (PPL): 888-752-8250 | ppcdass@pplfirst.com | www.publicpartnerships.com/state-programs/colorado
- Hours: Monday-Friday, 9:00 AM – 5:00 PM
If you have a live-in caregiver working with an agency, contact your agency to learn the impact of DOC on your caregiver’s income.
Resources and Support
Tax Help:
- Free and low-cost tax services: https://tax.colorado.gov/community-tax-help
General Medicaid Questions:
Detailed Information:
- HCPF Memo IM 25-018: https://hcpf.colorado.gov/sites/hcpf/files/HCPF%20IM%2025-018%20Difficulty%20of%20Care%20and%20Community%20First%20Choice.pdf
Monitoring Continuing Questions Regarding the DOC
CCDC is collaborating with other advocates and Colorado Medicaid leadership to address the ongoing issues related to DOC. e will share our findings with the community as we receive more information. lease submit your DOC questions via a special CCDC form at https://forms.gle/3QoFQdqcBhCnva4S.
This information is based on official HCPF guidance and should not be considered tax or legal advice. Consult appropriate professionals for your specific situation.