Key Takeaways
- Double Income Exclusion: Difficulty of Care payments are excludable from income for both Modified Adjusted Gross Income Medicaid and Housing Choice Vouchers (Section 8).
- Shared Residence is Mandatory: You must live full-time in the same home as the care recipient to qualify for the exclusion.
- Community First Choice Now Qualifies: Services provided under the Community First Choice program are now officially recognized as Difficulty of Care payments as of January 2026.
- Waiver Safety Net: Due to state system delays, care recipients should stay on a Home and Community-Based Services (HCBS) waiver to ensure the caregiver’s income is correctly excluded during Medicaid renewals.
What are Colorado Difficulty of Care payments?
Difficulty of Care payments are compensation for providing live-in home care to individuals with physical or cognitive disabilities who qualify for Home and Community-Based Services (HCBS) waivers or the Community First Choice program. In Colorado, these payments are excluded from a caregiver’s Modified Adjusted Gross Income Medicaid income calculation if the caregiver and recipient live in the same home.
How Your Living Situation Protects Your Own Medicaid Eligibility and Rent
At Caregivers First Choice, we believe your years of "invisible" caregiving are professional tenure. When you live with the person you care for, the law finally recognizes that expertise by protecting your household budget.
- The Modified Adjusted Gross Income (MAGI) Medicaid Exclusion
Under Colorado Code of Regulations 10 CCR 2505-10 8.100, Difficulty of Care payments are not counted as income for your own Medicaid eligibility. This means you can earn a professional wage without "earning your way out" of your own health insurance. - Housing Assistance
If you receive housing assistance (such as a Section 8 voucher from the US Department of Housing and Urban Development (HUD)), your housing arrangement is just as critical. Federal rules typically exclude Difficulty of Care payments from your annual income calculation for rent. Because you live in the same home, this income doesn't cause your rent to spike, allowing the money to stay in the household where it belongs.
The 2026 Community First Choice Update
As of July 1, 2025, Colorado moved many services from traditional waivers to the Community First Choice program. A landmark Private Letter Ruling from the IRS on December 12, 2025, confirmed that Community First Choice payments for "extraordinary care" are officially Difficulty of Care payments.
This is a victory for families, as it covers assistance with:
- Activities of Daily Living: Eating, bathing, dressing, and toileting.
- Instrumental Activities of Daily Living: Grocery shopping, medication management, and money management.
The "System Update" Risk: Why Home and Community-Based Services (HCBS) Waivers Still Matter
While the law has officially changed to include Community First Choice, the state’s technology is still catching up. The Colorado Department of Health Care Policy and Financing (HCPF) is currently working on system changes to ensure that income is accurately excluded for caregivers serving recipients who only use Community First Choice.
Until this update is complete, moving a care recipient off a waiver and onto a plan that only uses Community First Choice carries a high administrative risk for the caregiver.
Modified Adjusted Gross Income Medicaid Risk Assessment
| Recipient Status | Difficulty of Care Eligibility | Medicaid Assessment Risk |
|---|---|---|
| Home and Community-Based Services Waiver + Community First Choice | Qualified | LOW: Systems currently recognize waiver-linked income. |
| Community First Choice-Only (Non-Waiver) | Qualified | HIGH: Systems are still being updated; income might be incorrectly counted. |
Recommendation for Caregivers: To protect your own Medicaid eligibility, ensure the care recipient maintains their Home and Community-Based Services waiver enrollment if they have a live-in caregiver applying for or renewing Modified Adjusted Gross Income Medical Assistance. This ensures the Difficulty of Care exemption is triggered correctly in the state's system while they finish the technical updates.
Frequently Asked Questions
Is the Difficulty of Care exclusion automatic for live-in caregivers?
No. An eligibility worker must verify your living situation and manually designate the income as Difficulty of Care in the Colorado Benefits Management System (CBMS).
What if I live in a basement apartment with a separate entrance?
The rule requires you to live "full-time in the same home" as the recipient. If the housing structure is technically separate (different mailing addresses), the exclusion may be denied.
Can I get my 2025 taxes back?
Yes. Since the Internal Revenue Service ruling is retroactive to the 2025 tax year, you can contact your Provider Agency or Financial Management Services contractor about recouping taxes withheld from Community First Choice payments.
Why does a Community First Choice-only status put my Medicaid at risk?
The Colorado Benefits Management System was built to recognize "waiver income." Because Community First Choice is new, the system may not yet "know" to ignore that income, leading to an accidental disqualification.
Sources:
- Colorado Department of Health Care Policy and Financing, Difficulty of Care Payments Overview (Dec 2024)
- Colorado Code of Regulations, 10 CCR 2505-10 8.100
- Internal Revenue Service, Certain Medicaid waiver payments may be excludable from income (Notice 2014-7)
- Colorado Department of Health Care Policy and Financing Informational Memo, Difficulty of Care and Community First Choice (HCPF IM 26-001)
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