Can a Family Member Get Paid as a Caregiver in Tennessee?

In Tennessee, a family member can get paid as a caregiver mainly through TennCare CHOICES Consumer Direction, the state’s Medicaid long-term care program, which lets the person receiving care hire relatives directly. Veterans’ families have additional options through the U.S. Department of Veterans Affairs. Each route has its own eligibility rules, payment structure, and tax consequences, and a few planning steps can save families from serious trouble later.

TennCare CHOICES Consumer Direction

TennCare CHOICES is Tennessee’s Medicaid program for adults 65 and older and adults 21 and older with physical disabilities who need long-term services and supports. It covers nursing facility care, but it also funds Home and Community Based Services so people can stay in their own homes.¹

The piece that matters for paid family caregiving is called Consumer Direction. Under this option, the care recipient (or a representative acting for them) chooses who provides care, sets the schedule, and directs the work. That includes hiring family members, friends, or neighbors, though some limits apply depending on the relationship and living arrangement.¹

To qualify, the care recipient has to meet TennCare’s financial eligibility rules and functional criteria showing a real need for long-term care help, typically with tasks like bathing, dressing, eating, or moving around the house. An assessment sets the level of care and the budget available.²

Legal guardians can sometimes be paid too. Tennessee allows it in certain circumstances, with safeguards required when the same person is directing the care plan and providing the care.³

VA Programs if Your Family Member Is a Veteran

Several VA programs pay family caregivers directly or give the veteran funds they can use to pay you.

Program of Comprehensive Assistance for Family Caregivers

PCAFC pays a monthly stipend to the primary family caregiver of an eligible veteran, along with training, mental health counseling, and certain travel benefits. The veteran needs a VA disability rating of 70 percent or higher, at least six continuous months of in-person personal care needs, and enrollment in VA health care.⁴

The stipend is tied to the federal GS-4, Step 1 pay rate for the veteran’s locality, so amounts vary by area. Level One pays the locality rate divided by 12, multiplied by 0.625. Level Two, for veterans the VA determines are unable to sustain themselves in the community, uses a multiplier of 1.0.⁵

Veteran-Directed Care

Veteran-Directed Care gives the veteran a monthly budget to spend on their own care plan, including paying a family member. A counselor helps build the spending plan. Hourly rates for workers hired through VDC typically run about $15 to $20, though they can be higher in some areas, and the rate you pick determines how many care hours the budget covers.⁶⁷

Aid and Attendance or Housebound Benefits

Veterans already receiving a VA pension who need help with daily activities, or who are largely confined to home, may qualify for an added monthly payment called Aid and Attendance or Housebound benefits. These are not caregiver-specific programs, but the veteran can use the money to pay a family member for in-home help. For 2026 (rates effective December 1, 2025), Aid and Attendance for a veteran with no dependents pays up to $29,093 per year, about $2,424 per month; Housebound with no dependents pays up to $21,313, about $1,776 per month. Rates rise with dependents.⁸

Surviving spouses can also qualify. A surviving spouse with no dependents can receive up to $18,697 per year (about $1,558 monthly) under Aid and Attendance or $14,298 (about $1,192 monthly) under Housebound.⁹

How to Apply

For TennCare CHOICES, the starting point depends on whether the care recipient already has TennCare. If they do, call the managed care organization listed on their TennCare card and ask about CHOICES enrollment and Consumer Direction. If they don’t, contact the local Area Agency on Aging and Disability at 1-866-836-6678. An AAAD representative can come to the applicant’s home to help with the application. The LTSS Help Desk at 1-877-224-0219 answers questions about the long-term care Medicaid application itself.¹⁰

Once someone is enrolled, an assessment sets the level of care and the covered services. A care plan is written that spells out duties and hours. Under Consumer Direction, the care recipient or their representative hires the caregiver, and payment runs through a fiscal intermediary that handles payroll and tax withholding.

For VA programs, start with the VA Caregiver Support Line at 1-855-260-3274 or an application on VA.gov. PCAFC requires a formal application, a clinical assessment, and VA approval. Veteran-Directed Care is coordinated through the veteran’s local VA medical center.⁴

Put the Caregiver Agreement in Writing

Families often skip a formal caregiver agreement because it feels strange to sign a contract with Mom or Dad. Skip it and you risk a Medicaid problem later.

Federal law imposes a 60-month lookback when someone applies for Medicaid long-term care. Any transfer of assets during that window for less than fair market value can trigger a penalty period when Medicaid won’t pay for nursing facility care or home and community-based services.¹¹

Without a written agreement, regular payments from a parent to an adult child look like gifts to an eligibility reviewer. A caregiver agreement establishes that the money was compensation for services at a fair market rate. It should describe the specific services, the schedule, the hourly or monthly rate, and how payment will be made. Sign and date it before the care starts, ideally with notarization, and keep it with your records.

Taxes on Caregiver Pay

Caregiving income is generally taxable, and the IRS usually treats these arrangements as household employment. Tennessee has no state income tax on wages, which cuts one layer of paperwork, but the federal rules still apply.

If you pay a family caregiver $3,000 or more in cash wages during 2026, you have to withhold and pay Social Security and Medicare taxes (FICA) on all wages paid to that caregiver for the year, including the first $3,000. If total cash wages to all household employees hit $1,000 or more in any calendar quarter of 2025 or 2026, federal unemployment tax (FUTA) applies on the first $7,000 of each employee’s wages. The care recipient, as the employer of record, files Schedule H with their federal tax return. In most Medicaid Consumer Direction setups, the fiscal intermediary takes care of payroll and reporting.¹²

The Medicaid Waiver Exclusion

Under IRS Notice 2014-7, Medicaid waiver payments for home and community-based care are treated as difficulty-of-care payments and excluded from gross income when the caregiver and the care recipient live in the same home. The home doesn’t have to be yours. If you moved into your parent’s house to care for them, that home counts as your home for the exclusion.¹³

The exclusion applies even if you are not related to the person you care for, as long as you share a home and the payments come through a qualifying Medicaid waiver like TennCare CHOICES. It does not apply to VA program payments or private pay arrangements.

Protecting the Family Home

After a Medicaid beneficiary dies, the state can pursue reimbursement from the estate for long-term care costs it paid. This is called estate recovery, and the family home is usually the biggest asset at risk. There is a specific protection for caregiving children.

The caregiver child exception allows the family home to be transferred to an adult child without triggering a Medicaid transfer penalty, if certain conditions are met. The adult child must have lived in the parent’s home for at least two continuous years immediately before the parent entered a nursing facility, and the care during that period must have been substantial enough to delay institutional care. The child must be a biological or adopted child. Stepchildren, in-laws, and grandchildren do not qualify under this exception.¹¹

Documentation matters. Keep records showing your residence in the home, the care you provided, and medical evidence that your work delayed nursing home placement.

What Paid Caregiving Does to Your Own Social Security

Leaving a regular job to care for a relative can quietly reduce your future Social Security retirement benefit. Social Security uses your highest 35 years of earnings, so each year with no earnings, or very low earnings, counts as a zero in the average.¹⁴

Pay that runs through household employment with FICA withheld does count toward your Social Security record. Payments excluded under the Medicaid waiver rule, however, don’t generate Social Security credits, because no FICA is paid on excluded income. For anyone who expects to spend years as a paid family caregiver, that tradeoff between tax-free income now and a smaller Social Security check later is worth working through carefully before the first paycheck.

1
TennCare. CHOICES
2
State of Tennessee. TennCare Eligibility Reference Guide
3
Medicaid. Leveraging Family Caregivers for Personal Care Services in 1915(c) Waiver Programs
4
Veterans Affairs – VA.gov. Program of Comprehensive Assistance for Family Caregivers
5
VA Caregiver Support Program. PCAFC Monthly Stipend Fact Sheet
6
U.S. Department of Veterans Affairs. Veteran-Directed Care – Geriatrics and Extended Care
7
Administration for Community Living. Veteran Directed Care Billing and Invoicing Guide
8
VA.gov. Veterans Pension Rates
9
Veterans Affairs. Current Survivors Pension Benefit Rates
10
TennCare. How to Apply
11
Office of the Law Revision Counsel. 42 USC 1396p – Liens, Adjustments and Recoveries, and Transfers of Assets
12
Internal Revenue Service. Publication 926 (2026), Household Employer’s Tax Guide
13
Internal Revenue Service. Certain Medicaid Waiver Payments May Be Excludable From Income
14
Social Security Administration. Additional Work Can Increase Your Future Benefits