Introduction: Payroll shouldn’t be the hardest part of home care
Does this ring true? You’re trying to do right by your caregivers. But between IRS rules, tax exemptions, and state-by-state wage reporting, payroll has turned into a compliance minefield. You’re spending hours sorting out who qualifies for what, wrestling with payroll systems that weren’t built for this kind of work, and crossing your fingers every time you generate a W-2.
It’s frustrating. And risky.
Because getting payroll wrong doesn’t just cost time, it can cost you caregivers, tax penalties, and a lot of sleepless nights.
Here’s the good news: there’s a better way. At Everee, we’ve helped home care agencies ditch the spreadsheets, simplify DOC tax handling, and give caregivers the seamless pay experience they deserve. In this blog, you’ll learn exactly how DOC payments work, why they’re so complex to manage manually, and how payroll automation solves the mess—while keeping you compliant with IRS Notice 2014-7.
If you’re tired of letting payroll headaches distract you from delivering great care, keep reading. This guide is built for you.
What are DOC payments and why do they matter?
If you’re paying caregivers through a Medicaid waiver program and they live with the client, you’re likely dealing with Difficulty of Care (DOC) payments. The IRS, through Notice 2014-7, defines these payments as compensation for non-medical support services provided in the caregiver’s home to individuals eligible for Medicaid-funded care.
In simple terms: if a caregiver lives with the person they’re caring for, and the pay comes from a state Medicaid waiver program, that income might be tax-exempt at the federal level.
This matters for two big reasons:
- DOC payments are federally tax-exempt income, which can significantly boost caregivers’ take-home pay.
- They add complexity for payroll teams that need to apply different tax rules and reporting methods.
Caregiver eligibility depends on factors like:
- Medicaid waiver funding
- Shared residence between caregiver and client
- Type of services provided (non-medical)
- Relationship to the client (any relationship is fine)
- Limit on number of individuals cared for
Get it wrong and you could end up misclassifying wages, withholding the wrong taxes, or filing inaccurate W-2s. Get it right and you protect your agency and your caregivers.
The tax complexity of DOC payments
DOC payments aren’t taxed like regular wages. Here’s a breakdown of what applies and what doesn’t:
Federal Income Tax:
DOC wages are not subject to federal income tax. Don’t withhold. Don’t include them in Box 1 of the W-2. Instead, report them in Box 12 with Code II.
FICA (Social Security and Medicare):
DOC wages are still subject to FICA. These wages must be included in Boxes 3 and 5 of the W-2.
FUTA (Federal Unemployment Tax):
FUTA applies unless a narrow exemption does.
State Income Tax:
State treatment varies. Some states (like California) exclude DOC wages. Others (like Pennsylvania) do not. Your system needs to handle both properly.
1099-NEC and 1099-K:
If a caregiver qualifies for DOC under IRS guidelines and provides a written statement, you should not issue them a 1099.
Summary:
- No federal income tax
- FICA and FUTA still apply
- State tax varies
- Don’t issue 1099s for DOC wages
Manual payroll is a compliance nightmare
Processing payroll and tracking DOC payments by hand introduces real risk:
Tracking eligibility:
You must confirm that the caregiver lives with the client, works under a Medicaid waiver, and provides non-medical support. Living arrangements and funding status can change often.
Adjusting withholding:
Manually overriding federal tax withholding while still calculating FICA and state taxes (sometimes) creates room for error.
Handling mixed shifts:
Some caregivers serve both DOC and non-DOC clients. Splitting hours across clients with different tax treatments manually is time-consuming and error-prone.
W-2 prep:
You must exclude DOC wages from Box 1, include them in Box 12 with Code II, and handle state boxes based on specific tax rules.
IRS risk:
Incorrect W-2s, missed withholding, or over-reporting can lead to IRS notices or caregiver complaints. One mistake can trigger penalties or force a caregiver to amend their return.
Why DOC Payroll automation changes everything
Automating your payroll offers major advantages:
1. Reduces compliance risk
Automation ensures tax rules are applied consistently and accurately.
2. Speeds up payroll
Tax rules are calculated in real time, so you don’t need to slow down or double-check math.
3. Improves caregiver satisfaction
No more over-withholding, delayed pay, or confusing W-2s. Caregivers get their full take-home pay and trust that it’s correct.
4. Saves time for admins
No spreadsheets. No manual overrides. No January scramble. Your team can focus on scaling and supporting care.
5. Scales with your agency
Whether you have 10 or 500 caregivers, automation handles the complexity and adapts as you grow.
How Everee makes payroll for home care agencies easy
Everee is designed to automate home care agency payroll from start to finish:
Enable DOC handling at the company level
Everee applies IRS rules automatically once DOC handling is enabled.
Shift-level and worker-level controls
Mark caregivers or specific shifts as DOC-eligible, and Everee applies the correct tax rules.
Automatic tax adjustments
Everee:
- Stops federal withholding
- Applies FICA and FUTA correctly
- Includes or excludes state tax based on location
Accurate W-2 and 1099 handling
DOC wages are excluded from Box 1 and shown in Box 12 with Code II. No unnecessary 1099s are issued for DOC payments.
Built-in reporting and audit trails
See total DOC wages paid, track eligibility changes, and respond to caregiver questions or audits with confidence.
Handles edge cases
Whether you operate across multiple states or use consumer-directed care models, Everee adapts to your agency’s needs.
Bonus: Solve cash flow gaps with Everee Credit
DOC compliance isn’t your only payroll challenge. Cash flow timing matters too. If Medicaid reimbursements are delayed but your caregivers expect to be paid weekly, you need a solution.
Enter Everee Credit.
Everee can advance payroll funds letting you pay caregivers on time, even the same day. Without waiting on Medicaid payments.
- Everee funds payroll upfront
- You repay once reimbursements arrive
- Caregivers get faster pay, without stressing your budget
This lets you offer on-demand pay or same-week pay reliably, which improves caregiver trust and retention.
Checklist: What to look for in a payroll system
Use this to evaluate any platform you’re considering:
✔ IRS Notice 2014-7 compliance
- Exclude DOC wages from federal tax
- W-2 Box 12 Code II support
- No federal withholding on DOC pay
✔ Shift-level and worker-level controls
- Ability to mark DOC eligibility per worker or shift
- Can upload timesheet and shift-level detail from any system in seconds
- Detailed and compliant pay stubs that show shift information
✔ State-specific tax handling
- Includes or excludes DOC wages correctly for each state
- Automates tax compliance, even if someone takes shifts in multiple jurisidictions
✔ Designed for Medicaid-funded models
- Supports multiple pay sources and rates
- Integrates with Medicaid billing and time tracking
✔ W-2 and 1099 accuracy
- No 1099s for DOC wages
- W-2s are correct without edits
✔ Reporting and audit trails
- Clear records of DOC wages and actions
- Easy to verify compliance
✔ Home care expertise
- Platform and support team understand Medicaid-funded payroll and DOC rules
Everee checks all of these boxes.
Conclusion: Payroll shouldn’t be harder than caregiving
You didn’t get into home care to decode tax law. But you also can’t afford to get payroll wrong.
Everee takes the complexity out of home care payroll, from automated DOC payments and tax handling to real-time pay and cash flow flexibility. Whether you manage a handful of live-in caregivers or hundreds of client shifts, Everee helps you stay compliant, reduce admin load, and support your caregivers with accurate, timely pay.
It’s time to stop fighting your payroll system and start trusting it.
Make payroll as dependable as the care you provide.