A daughter in her late 50s leaves a part-time job to care for her aging mother. She drives her to dialysis, manages her medications, helps her bathe. In about a dozen states, Medicaid will pay that daughter through a self-directed waiver program, often $13 to $15 an hour. That modest check is pulling double duty: keeping the household afloat right now and quietly building the daughter’s own Social Security record for later.
That arrangement is now squarely in the political crosshairs. In April 2026, Health Secretary Robert F. Kennedy Jr. and Centers for Medicare and Medicaid Services chief Mehmet Oz publicly questioned Medicaid waiver programs that pay relatives for tasks like driving parents to appointments, framing those payments as a source of fraud. Kennedy told lawmakers the waivers cover things families “used to do as family members for free,” including “balancing the checkbook, picking up the groceries, driving somebody to a doctor’s appointment.” Whatever one thinks of the policy debate, the downstream effect on family budgets and future Social Security checks is concrete.
The situation has since escalated. On July 21, 2026, Kennedy and Oz announced they were pausing more than $1 billion in Medicaid payments to California and Minnesota, citing suspected fraud and noncompliance. CMS withheld roughly $867.5 million from California and about $199 million from Minnesota after the states did not provide documentation requested in federal audits. Both governors pushed back sharply, with Minnesota’s Tim Walz calling the move political retribution and California’s Gavin Newsom characterizing it as a recycled political stunt. The administration described the payments as deferred rather than cut, saying the states can recover the funds by showing the claims meet federal requirements. Whether or not those specific dollars flow to family caregivers, the episode signals just how aggressively the administration is pressing its fraud narrative.
One caregiver on a popular forum recently described becoming a full-time helper for his 88-year-old mother after she lost the ability to walk, and asked how anyone in his shoes is supposed to survive financially. For people in that position, the waiver payment is often the only answer.
The Social Security piece most people miss
The piece that gets lost in the political back-and-forth is this: Medicaid waiver payments to family caregivers are generally excludable from federal income tax under IRS Notice 2014-7, but they are still wages for Social Security and Medicare purposes. Payroll taxes come out. Those dollars land on the caregiver’s earnings record at the Social Security Administration.
That matters because Social Security retirement benefits are calculated from the highest 35 years of earnings. Zeros in that average drag the final benefit down permanently. A caregiver who steps away from paid work for five or ten years without any reportable wages is locking in a smaller monthly check for the rest of their life.
The credit math is straightforward. In 2026, a worker earns one Social Security credit for every $1,890 in covered wages, and the maximum four credits for the year require $7,560 in earnings. A family caregiver paid $14 an hour for just 15 hours a week clears that threshold easily, keeping insured status for retirement and disability coverage intact. Strip away the waiver payment, and that same caregiver could spend years contributing nothing to their own record while still doing the exact same work.
The dollar impact adds up fast. A caregiver who replaces five years of $25,000 in reportable earnings with five years of zeros can see their eventual benefit fall by roughly $150 to $250 a month for life. Over a 20-year retirement, that is well into five figures, and the gap compounds with the 2.8% cost-of-living adjustment applied each year the benefit is paid.
How it ties into the rest of the picture
The waiver check often does more than supplement income. It is frequently the only thing keeping a caregiver from filing for Social Security at 62, which permanently reduces the benefit by about 30% compared with waiting until the full retirement age of 67. When that income disappears and savings thin out, the pressure to file early intensifies. With the personal savings rate sitting at roughly 3% in mid-2026, far below the historical average near 8%, the financial cushion most caregiving families have to absorb a sudden policy change is thin. Consumer confidence, while recovering from its record low in May 2026, remained only 54.4 on the University of Michigan index in July’s preliminary reading, still about 12% below where it stood a year earlier.
There is also a tax-planning angle worth understanding. Because waiver payments are excluded from gross income, they do not push other household Social Security benefits into the taxable range. That threshold kicks in once combined income exceeds $25,000 for single filers or $32,000 for married couples. Replacing waiver income with a conventional W-2 job, assuming a caregiver could find one in a labor market where unemployment stands near 4.2%, would likely raise the household tax bill at the same time it introduces new logistical pressures around caregiving.
What to think through now
- Pull your Social Security statement. Log in at ssa.gov and confirm that waiver payments are showing up as earnings. If they are missing, that is fixable now and very hard to fix at 67.
- Run the “what if it goes away” scenario. If the program were cut or frozen, would you file Social Security early, lean on a spouse, or look for outside work? Knowing the fallback before you need it is the difference between a planned decision and a panicked one.
Every family’s mix of ages, state rules, and health timelines is different, and a single conversation with a benefits counselor can surface details that change the answer entirely.
Editor’s note: This update adds the July 21, 2026 announcement by HHS Secretary Kennedy and CMS Administrator Oz pausing more than $1 billion in Medicaid payments to California and Minnesota; updates the University of Michigan consumer sentiment figure to reflect the June 2026 final reading of 49.5 and the July 2026 preliminary of 54.4; and corrects the personal savings rate to approximately 3% based on May 2026 Bureau of Economic Analysis data, down from the prior “near 4%” reference, and the unemployment rate to 4.2%.
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