There is so much to learn about Medicaid Waivers and much of it not specific to one state! According to the IRS Notice 2014-7, 2014-4 I.R.B. 445, if you are paid through a Home and Community-Based Medicaid Waiver to take care of someone living in your home, your pay is not subject to Federal Income Taxes – that means you do not need to have payroll withholding taxes. 

Here is the link to the information: http://www.irs.gov/Individuals/Certain-Medicaid-Waiver-Payments-May-Be-Excludable-From-Income. There are also lots of questions and answers in the article to help you figure out if you would be eligible.  You would need to talk to a tax consultant about amending your tax papers from previous years but this could result in a great refund. Also, there is information on how to fill out a W-2 so income tax isn’t deducted from your pay in the future.

You will still be responsible for State and Local taxes as well as Social Security, Medicaid and FUTA taxes. In some instances FUTA taxes or Federal Unemployment Tax, might not need to be deducted either but again, you need to check with a tax professional to find out all your options.