Under IRS Notice 2014-7, certain Medicaid waiver payments made to an individual who provides care in the home of the person they support are excludable from gross income for federal tax purposes.

How to report the exclusion:
– **If you receive a W-2**: If your employer includes these payments on your W-2, you may still exclude them by not including the amount in your taxable wages on your Form 1040. Attach a brief explanatory statement referencing IRS Notice 2014-7.
– **If you are self-employed**: Do not report qualifying waiver payments as self-employment income on Schedule C.
– **EITC**: The IRS confirmed you may still claim the Earned Income Tax Credit (EITC) based on these excluded payments as if they were included in income, even if you exclude them from gross income.
– **State taxes**: The federal exclusion does not automatically apply to state taxes — consult a tax professional about Arkansas state tax treatment.

Consult a tax professional or IRS Volunteer Income Tax Assistance (VITA) site for guidance specific to your situation, especially if the payments represent a significant portion of your income.