How do I enter my tax-exempt Medicaid waiver payments from IHSS in TurboTax Home and Business 2020?

[2020INAZ]

My employer switched me from W-2 (with taxes taken out) to 1099 mid-2020. As a result, I have both W-2's and a 1099-NEC

1) How do I enter the Medicaid waver payments for the W-2, with all boxes filled in and taxes removed?

2) How and where do I enter the 1099-NEC?

3) How do I adjust the income for the Earned Income Credit?

Please note... On my version of TurboTax Home and Business 2020
Nontaxable Medicaid waiver payments that qualify as difficulty of care payments is not an option for the uncommon situations screen.

[DianeW777]

Follow the instructions in the link below to record your medicaid wavier payments from your W-2. 

Enter your W-2 as usual like any other W-2.  Next follow these steps to complete the action of removing this income from your return.

1. Scroll down the page to the last section titled: Less common Income 
2. Select start or update next to the last topic titled Miscellaneous Income, 1099-A, 1099-C;
3. Scroll down to the last option titled Other reportable income and select start or edit/review;
4. When it asks, "Any other reportable income?" say yes then you will make one entry
5. Enter this description: IRS Notice 2014-7 excludable income and enter the W-2 Box 1 amount as a Negative (-) number

When you return to the Wages & Income page, scroll to see the negative income beside​​​​​​​ Miscellaneous Income, 1099-A, 1099-C; This will remove the income on your return for the IHSS or other payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver program.

1099-NEC

Enter your caregiver income using the following steps (do not enter the Form 1099-NEC).

1. Open your TurboTax return > Under Wages and Income scroll to Miscellaneous Income
2. Select Other income not already reported on a Form W-2 or Form 1099 > Start or Revisit
3. Select Yes under Did you receive any other wages > Continue
4. Continue to screen Enter Source of Other Earned Income > Select Employee Compensation that was not reported on a W2
5. This walks you through the Form 8919 - enter the required information as you continue
6. Select Should have been reported on a W-2 for the dropdown

Because the IRS ruled that this income does qualify for earned income tax credit (EITC) purposes means the employee portion of social security and Medicare taxes must be paid.

[2020INAZ]

Thank you for the detailed instructions. 

Just to clarify...

The 1099-NEC income is taxable and reported as wages on my return; and is not excludable income under the Medicaid Home and Community-Based Services Waiver program?

Only W-2 income is excludable income under the Medicaid Home and Community-Based Services Waiver program?

[2020INAZ]

Form 8919 resolves the fact my employer reclassified my employment from W-2 to 1099 without my knowledge or permission. 

That said, even after following the instructions, backing out the W-2 income and adding the 1099 income per the Medicaid Home and Community-Based Services Waiver program my Earned Income amount didn't change. It says I'm over the Earned Income limit, so I don't qualify for the EIC.

My Earned Income total is based on the W-2, Box 1, amount plus the 1099-NEC amount.

Is this correct?

[MonikaK1]

Please see the steps in this help article to enter IHSS W-2 income. If it's reported on a W-2, enter it in the W-2 section.

The help article for this issue was recently updated again. We are finding this year that different counties / payers are identifying the IHSS / difficulty of care income differently.

Many Forms W-2 issued for IHSS - IRS Notice 2014-7 income now show zero in Box 1, to indicate that it isn't subject to Federal income tax, but show the entire amount of wages paid in Box 3, Social Security wages. If you have an amount in Box 1 and/or Box 3, and you might qualify for Earned Income Credit or Additional Child Tax Credit, follow the instructions in this help article, which were recently updated:

1. Sign in to TurboTax and open your return.
2. Select Search, enter w-2, and select Jump to w-2.
3. Enter all your W-2 info as shown on your form, except Box 1 (this is assuming that the W-2 Box 1 is blank or zero). If your W-2 does have an amount in Box 1, enter the amount.
4. Enter the amount reported in box 3 of your W-2 in Box 1 ONLY if Box 1 is zero.
5. On the Let’s check for uncommon situations screen, select the box next to Nontaxable Medicaid waiver payments that qualify as difficulty of care payments.
6. Enter the amount of Medicaid waiver payments into the difficulty of care payment you received from IHHS box.
   • This is normally the same amount reported in boxes 3 and 5 of your W-2.
   • Your payments are nontaxable, but TurboTax uses this number to calculate credits you may qualify for.
7. When you get to the Earned Income Credit section in Deductions and Credits, we’ll ask if you want to add your Medicaid waiver payment to your income for this credit. You can answer based on what benefits you most.

If you follow these steps, you are entering income and then backing out the income, so that it isn't backed out twice, and so that you are not entering a zero in Box 1 which may prevent e-filing.

If you don't have any dollar amounts on your W-2, you qualify to exclude the income under IRS Notice 2014-7, and you don't expect to qualify for Earned Income Credit or Additional Child Tax Credit, then you don't need to enter the W-2 at all.

[BigRabit1]

Hi Monika, 

In my situation, I provide IHSS care in CA. I received a W2 with 0 in box 1, and the same number in Box 3, 5, 12A. I don't expect to qualify for Earned Income Credit.

Based on your last comment, should I not even enter this W2 in my tax return? 

[MonikaK1]

We are in the process of updating the Help Article referenced by @DianeW777 on this topic due to issues with the new W-2 Box 12 code ii introduced this year. Also, returns can't be e-filed if they contain a W-2 entered with zero in Box 1.

Since you have a zero in Box 1, you can enter your W-2 in Miscellaneous Income as @Vanessa A recommended. 

If your W-2 reported IHSS income that wasn't excludable as difficulty-of-care, then you should enter it in the W-2 section.