State payments to individuals caring for disabled relatives are tax-free. They qualify as difficulty-of-care payments under a 2014 IRS Notice (2014-7). State Medicaid programs pay for the cost of a caregiver’s home-based services provided to disabled individuals who would otherwise require institutionalized care. It is the view of IRS that these Medicaid payments are excluded from income regardless of whether the care provider happens to be related to the patient. Prior to 2014, the Revenue Service took a different position on this issue. The payments also qualify for the earned income credit, the Tax Court says, in a case in which the Medicaid payments were the taxpayer’s only income source. Ditto for the refundable portion of the child tax credit (Feigh, 152 TC No. 15).