SECURE Act: Treating Excluded Difficulty of Care Payments as Compensation for Determining Retirement Contribution Limitations

Many home healthcare workers do not have taxable income because their only compensation comes from “difficulty of care” payments that are exempt from taxation under Internal Revenue Code Section 131.

As such, these payments are also not eligible to be contributed to an IRA or a qualified retirement plan.

“Difficulty of care payments” is defined in Code Section 131(c)(1)(A) as “compensation for providing the additional care of a qualified foster individual.” In other words, if you provide care in your home to an individual who has a physical, mental or emotional handicap, including payments received for caring for foster children, the income you receive is excluded from taxable income. 

Now, however, under Section 116 of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, home healthcare workers are able to contribute to an IRA or qualified retirement plan because the provision amends Code Sections 415(c) and 408(o) to state that tax-exempt “difficulty of care payments” are treated as compensation for purposes of calculating the contribution limits to DC plans and IRAs.

Interested in learning more about the SECURE Act? Download the SECURE Act eBook from the Schneider Downs Retirement Solutions team for a full overview of provisions and highlights at www.schneiderdowns.com/secure-act-ebook.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.