How and where to Post claim "IRS Notice 2014-7 excludable income"

[hmisener]

I have the same scenario, Did you need to include any documentation with your MN taxes? Like the W2 form? I entered my medicaid W2 as Intuit suggested so it isn't listed as a W2, just other income? What proof do I need that this is tax exempt income? Thanks! 

[Steve371]

While I don't have the Turbo Tax expertise that Barbara W. has, she is correct that the proper way to report a Medicaid caregiver W-2 is by entering it as a W-2 and offsetting it in other income.  If you both enter and offset it in other income, the income is not treated as earned income which makes a difference to those who claim the Earned Income Tax Credit.

As for the poster who received a 1099, is it truly reflecting payment for Medicaid caregivers?  If you need the earned income, and the answer was yes, get the issuer to issue you a W-2.  If you don't need earned income, enter and offset it in other income if you like, but entering it as a W-2 is the best method.

There is a legal requirement to report all income unless specifically excluded.  Despite the fact that Medicare caregiver compensation is specifically excluded from income, it is still a good idea to ALWAYS report income reported to you on tax forms so the IRS can match up your tax return with income reported by the respective payors. Otherwise you may receive a letter from the IRS regarding income not reported on your tax return and then you have to take time to answer it and face interest and penalties if it is determined you failed to report or “underreported” taxable income. 

Also know that sometimes state returns require that you report nontaxable income to determine eligibility for certain tax credits.  So, you may need to include Medicaid caregiver compensation and other verifiable nontaxable income on your state’s income tax return, if it has an individual income tax, such as cash assistance as required for these credits.  Note that I am NOT advising that a taxpayer only report what they believe is verifiable nontaxable income when there is a requirement to report all nontaxable income.

 Finally, as a general note, always file state and federal returns even when not required, for example, when claiming state tax credits only, because it starts the clock on the statute of limitations. And know that the statute of limitations is a double-edged sword, it stops the taxing authorities from pursuing you at some at a predefined point, but it also prevents taxpayers from claiming refunds at a predefined point.

[genevaray1986]

Directly from the IRS 1040 Instructions, page 84

Medicaid waiver payments to care provider. Certain Medicaid waiver payments you received for caring for someone living in your home with you may be nontaxable. If these payments were reported to you in box 1 of Form(s) W-2, include the amount on Form 1040 or 1040-SR, line 1. Also, include on line 1 any Medicaid waiver payments you received that you choose to include in earned income for purposes of claiming a credit or other tax benefit, even if you did not receive a Form W-2 reporting these payments. On line 8, subtract the nontaxable amount of the payments from any income on line 8 and enter the result. If the result is less than zero, enter it in parentheses. Enter “Notice 2014-7” and the nontaxable amount on the dotted line next to line 8. For more information about these payments, see Pub. 525

You can still choose to not claim it and exclude it as income or include it to receive tax credits.  I hope this helps.

[Peach cobbler]

How exactly did you enter the information and with what exact tax form or forms did you use?

[barbimedik]

The only problem with reporting it under "other reportable income" is Turbo Tax tries to force you to upgrade to DELUXE for $60 to report your income which is tax exempt. Ugh

[motelco2]

I filed my taxes using TurboTax, then found out that some of my income can be exempted from income tax under this Notice. I have asked the payor to stop withholding for 2020, but I need to file an amended return for 2019 to try to recover the taxes I paid. Any instructions for doing that with TurboTax would be most welcome. 

[DaraLO]

@motelco2 Refer to the following TurboTax FAQ for instructions on amending your 2019 return:  How to amend (change or correct) a return you alre ...

[dougk111]

IHSS is not an authority on whether one must be a relative to claim Notice 2014–7. In fact, it was originally concluded a relative would NOTbe able to claim the Medicaid waiver. Not until the tax court ruled to include relatives. Per the IRS: To achieve consistent federal tax treatment of Medicaid waiver payments among the states and individual care providers, this notice provides that as of January 3, 2014, the Service will treat qualified Medicaid waiver payments as difficulty of care payments under § 131(c) that are excludable under § 131, and this treatment will apply whether the care provider is related or unrelated to the eligible individual.

[Vickie_bertsch]

I don't know if anyone answered in the comments but I need to amend my last 3 years tax returns.  I qualify for the 2014-7 and not sure how to go about it.  Do I follow the instructions that were posted for claiming the difficulty of care in the comments?  Thanks

[barbimedik]

Vickie 

Honestly you are going to need a tax person to do this ammendment. I have yet to find a way to file with Turbo Tax or any other e-file program and properly put un the 2014-7 info. No tax program asks the right questions to generate a form that would negative out the amount you made. I can't figure from looking at past taxes exactly what they did. You may be able to pay the higher price to have a Turbo Tax agent to file for you but the free version will not work. 

I usually use the AARP free tax file help that is available at my local senior center. There is obviously a way to do it. It is just something a tax professional knows and has access to "forms" not available to self filers. I am sure they do this to get the money from you. 

[ratt1967]

I did follow the directions about filing the income in miscellaneous income then going back in and minus it out. I was also able to add the note about the difficulty of care exemption. It worked using turbo tax. I was able to file electronically. I don’t know how to do it if you need to amend previous tax years.

[barbimedik]

Where di you find the directions on how to file? I tried every way I read online and wasn't able to put a minus sign for a negative number in. Did you have to use a desktop computer? 

[jos2020tax]

Barbara,

i need to get in touch with you. it is now october 2020 and the year is almost over. i need help with my w4 and de4. im in san francisco, california working for ihss with 2 recipient. i have an exempt (had to move-in to help mom) and non exempt. when my exempt status have started, my state withholding have stop on both of my recipient. i only have a little withholding on my non exempt recipient.  how can i resolve this? i know this will be a problem later and also overtime pay....how do i deal with this? if you dont mind, id like for you to be my tax preparer. 

[xmasbaby0]

@jos2020tax You have posted your question in an old thread full of posts from other people.  And you are trying to get a response from someone --  "Barbara" -- who is likely a seasonal TurboTax employee who is not working now.  You cannot request that an employee who posts answers in the user forum be your "tax preparer."  This simply does not work that way.  TurboTax is software for a self-prepared return.

You need answers to your questions about your withholdings, etc.  Please start your own new question in the user forum that will catch the attention of someone familiar with working for ihss.  Do not try adding to an existing thread.  Start your own thread.

Use this link to "Get your taxes done using TurboTax" and click on the blue "Ask a Question" 

https://ttlc.intuit.com/community/taxes/discussion/02/202

[JNSII]

These instructions don't work for the year 2017.  I have to download a turbo tax program and the form seems different.  I enter the negative amount but after it just shows $0 for income reported.  What am I missing or do I need to do it differently?