At-home caregivers are classified as "Household Employees." As such, they fill out a W-2, and income taxes are withheld. So the money Blade is kicking back to "smurf" has already been taxed.
I've been looking into this and, honestly, it looks like Blade isn't doing anything illegal. Household Employees are allowed to arrange for someone else to perform their duties, as long as it is OK with their employer (in this case, Blade's mom. The caretaker is an employee of the person under care, not of the state.). So, the arrangement is something like this: Blade's mom hire's "smurf" to be her at-home caretaker through her Medcaid program; "smurf" then hires Blade to fill in for him, paying him out of his caretaker salary (in this case, 90%). As long as everyone involved - Blade's mom, "smurf," and Blade - are agreeable to this, everything's aboveboard.
It is not illegal for a private citizen to pay a felon to be a caretaker. It's just that the state, on principle and for liability's sake, won't directly pay a felon to be a caretaker. This arrangement is just a workaround. (I assume "smurf" assumes liability if Blade does something illegal or unethical in the course of his duties, in which case he could lose the ability to be a caretaker.)
The only question is if Blade is properly reporting his "under-the-table" earnings.
