IRC §3504 Fiscal/Employer Agent Rules (FMS Legal Framework)

IRS rules allowing a fiscal management services (FMS) vendor to act as the authorized employment-tax agent for a household employer — the legal mechanism behind every consumer-directed and self-directed Medicaid program that pays family caregivers. Explains why family caregivers in self-direction programs receive W-2s from an FMS vendor rather than from the state or the care recipient. Two models: Fiscal/Employer Agent (F/EA — participant is common-law employer) and Agency with Choice (co-employment). Every state self-direction program routes paychecks through an enrolled FMS.

This is a reference record explaining the legal plumbing of paid family caregiver arrangements: (1) Under §3504, an FMS vendor approved by the IRS via Form 2678 acts as the employment-tax agent for the care recipient ('home care service recipient'), handling payroll taxes on behalf of the household employer; (2) Two FMS models: (a) Fiscal/Employer Agent (F/EA) — the participant is the common-law employer, FMS handles payroll mechanics; (b) Agency with Choice (AwC) — the agency and participant are co-employers. (3) Family caregivers hired through self-direction receive W-2 forms from the FMS, not the state; (4) Rev. Proc. 2013-39 governs aggregate Form 940 (FUTA) filing for government-funded home care. For caregivers: when you are paid through a Medicaid consumer-directed program and wonder why your W-2 comes from an entity you did not hire — this is why. This framework also determines FICA withholding and payroll reporting for your wages. MACPAC June 2025 report is the canonical national map of FMS models by state.

Some details for this program are still being verified. Check the official source for the most current information.

Services

This is a reference record explaining the legal plumbing of paid family caregiver arrangements: (1) Under §3504, an FMS vendor approved by the IRS via Form 2678 acts as the employment-tax agent for the care recipient ('home care service recipient'), handling payroll taxes on behalf of the household employer; (2) Two FMS models: (a) Fiscal/Employer Agent (F/EA) — the participant is the common-law employer, FMS handles payroll mechanics; (b) Agency with Choice (AwC) — the agency and participant are co-employers. (3) Family caregivers hired through self-direction receive W-2 forms from the FMS, not the state; (4) Rev. Proc. 2013-39 governs aggregate Form 940 (FUTA) filing for government-funded home care. For caregivers: when you are paid through a Medicaid consumer-directed program and wonder why your W-2 comes from an entity you did not hire — this is why. This framework also determines FICA withholding and payroll reporting for your wages. MACPAC June 2025 report is the canonical national map of FMS models by state.

How to apply

Apply online or find more information at the official program page.