To: Families in the Virginia Birth Injury Program
From: Alan Abramowitz, Interim Director
Date: Monday March 2nd, 2026
Re: Tax Reporting Update – IRS Form 1099
Dear Families,
We are writing to formally state the Program’s tax reporting practices regarding family caregiver payments and the monthly support benefit provided under the Virginia Birth-Related Neurological Injury Compensation Program (Program). After reviewing federal tax law, consulting tax counsel, and examining how similar statutory programs operate, the Program has determined that it will not issue IRS Form 1099 for the categories of payments described below.
Family Caregiver Payments
The Program will not issue 1099 forms to parents or family members who are being paid to provide care in the home to an eligible participant. Under Internal Revenue Code § 131, certain “qualified foster care payments,” including “difficulty of care payments,” are excluded from gross income. Specifically, IRC § 131(c) includes payments made for providing additional care required because of a physical or mental disability. In IRS Notice 2014-7 (2014-4 I.R.B. 445), the Internal Revenue Service clarified that payments made under state programs to individuals providing in-home care to a person with disabilities are treated as “difficulty of care payments” under § 131 and are excluded from federal income tax. These payments are also not subject to self-employment tax when the caregiver is not operating a caregiving business. Based on this authority, payments made by the Virginia Birth Injury Program to a parent or family member caring for the participant of the program are excluded from gross income and should not be reported on Form 1099 by the Program.
Wage Benefits
The Program also provides a monthly statutory support payment beginning when an eligible participant reaches age 18 and continues through age 65. This payment has historically been referred to as a “wage benefit,” and will be updated in our policy guide to be called “disability support payment”, so its purpose is more accurately reflected. This payment is not compensation for services and is not earned income. It is a statutory support benefit provided and arising out of the Virginia Birth Injury Act. Because it is not payment for employment or services, the Program will not issue a 1099 for these payments.
Supporting Authority and Comparable Programs
Attached are copies of Internal Revenue Code § 131, IRS Notice 2014-7, and related IRS publications and supporting materials. In addition, a formal IRS communication was previously issued to the Florida Birth-Related Neurological Injury Compensation Association (NICA) confirming that family caregiver payments under that statutory program were not subject to 1099 reporting. While the Florida and Virginia programs differ in certain structural details, both are state-created statutory programs that authorize payment to parents and caregivers for the care of eligible children. It is the program’s position that the federal tax analysis under § 131 should apply in the same manner to payments made under these types of programs.
Important Note
Each participant and caregiver remains responsible for consulting with their own tax professional regarding their individual tax situation. The Program cannot provide individualized tax advice. If you have Program-related questions, please contact our office. We appreciate your continued partnership and your patience as we ensure our practices align fully with federal law.
Sincerely,
Alan Abramowitz
Interim Director
Virginia Birth Injury Program
850.241.3232
Cited Authorities and Supporting Language
26 U.S.C. § 131(a) – General Rule
Gross income shall not include amounts received by a foster care provider during the taxable year as qualified foster care payments.
26 U.S.C. § 131(c) – Difficulty of Care Payments
For purposes of subsection (b)(2)(B), the term “difficulty of care payment” means compensation paid for providing additional care required by reason of a physical, mental, or emotional handicap of a qualified foster individual which is provided in the home of the foster care provider.
https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section131
IRS Notice 2014-7 (2014-4 I.R.B. 445) – Relevant Verbatim Sections
The Service will treat qualified Medicaid waiver payments as difficulty of care payments under § 131(c).
For purposes of this notice, qualified Medicaid waiver payments are payments received by an individual care provider for providing non-medical support services to a qualified individual under a Medicaid Home and Community-Based Services waiver program described in section 1915(c) of the Social Security Act.
Qualified Medicaid waiver payments are excludable from gross income under § 131.
Qualified Medicaid waiver payments are not subject to self-employment tax.
https://www.irs.gov/pub/irs-drop/n-14-07.pdf
IRS Publication 525 (Taxable and Nontaxable Income):
Confirms that qualified difficulty-of-care payments are excluded from income under § 131.
https://www.irs.gov/forms-pubs/about-publication-525
IRS Publication 926 (Household Employer’s Tax Guide):
Clarifies that payments excluded under § 131 are not subject to income tax or self-employment tax.
https://www.irs.gov/forms-pubs/about-publication-926