I paid taxes on Medicaid waiver payments. How do I record that on my taxes when I am only listing gross income, EIN, and comment “Notice 2014-7”?

[element_nia]

I’ve been getting paid as a AT. and HAB provider for my son. I didn’t know this income was tax exempt, so I’ve been paying taxes on it. I’ve just found out about Notice 2014-7 and am changing to tax exempt however, I don’t know how to list taxes already paid on my taxes.

[CatinaT1 · Accepted solution]

Tax-Exempt Medicaid Waiver Payments from IHHS  

TurboTax can exempt income under Notice 2014-7 per the IRS instructions for Medicaid Waiver payments from IHHS. This Notice provides that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver (Medicaid waiver) program are difficulty of care payments and excludable as income. Additionally, you can choose to use this income to calculate Earned Income Credit. Regardless, the income will remain non-taxable.     

This tax-exempt income can be reported to you differently depending on the State and County you live in. You might receive a W-2, 1099, and no form at all.   

See the instructions below for how to report this depending on how the income was reported to you.  

1. If you received a W-2 with $0 in Box 1:  
2. Sign in to TurboTax Online, click Continue to your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
3. Click on Federal Taxes, and then click on Wages & Income;     
4. Under Wages and Income, click Start;      
5. Click on Work on my W-2, and enter the information as reported on your W-2.     
6. After entering all your W-2s, you will see the screen, Let’s check for uncommon situations. Next to Nontaxable Medicaid waiver payments, check the box.  
7. You will enter the amount of Medicaid Waiver Payments into the box asking for the total amount of difficulty of care payment you received from IHHS. This will be the same amount reported in Boxes 3 and 5 of your W-2.  
8. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

If you received a 1099 or no form:  

1. Sign in to TurboTax Online, click Continue your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Scroll down to Less Common Income;       
4. Click on Start next to Miscellaneous Income, 1099-A, 1099-C.  
5. Click on Start next to, Other income not already reported on a Form W-2 or Form 1099;      
6. Answer Yes to Did you receive any other wages?;      
7. Leave blank the box for Wages earned as a household employee and click continue;  
8. Leave blank the box for Sick or disability pay and click continue;       
9. Enter the amount of Medicaid waiver payments on Certain nontaxable Medicaid waiver payments not reported on Form W-2, and click Continue.  
10. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

For more information, refer to IRS Notice 2014–7, 20144 I.R.B. 445 and the IRS FAQs.    

If you need to amend prior year returns, See this TurboTax FAQ for help with amending.   

[bpaulg]

I have a follow up question.  I received a W2 for Medicaid waiver payments, but it does not have $0 in Box 1.  It has the gross amount I was paid.  Can I just proceed to follow these instructions that are listed here in entering this information?

[CatinaT1]

Tax-Exempt Medicaid Waiver Payments from IHHS  

TurboTax can exempt income under Notice 2014-7 per the IRS instructions for Medicaid Waiver payments from IHHS. This Notice provides that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver (Medicaid waiver) program are difficulty of care payments and excludable as income. Additionally, you can choose to use this income to calculate Earned Income Credit. Regardless, the income will remain non-taxable.     

This tax-exempt income can be reported to you differently depending on the State and County you live in. You might receive a W-2, 1099, and no form at all.   

See the instructions below for how to report this depending on how the income was reported to you.  

If you received a W-2 with $0 in Box 1:  

1. Sign in to TurboTax Online, click Continue to your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Under Wages and Income, click Start;      
4. Click on Work on my W-2, and enter the information as reported on your W-2.     
5. After entering all your W-2s, you will see the screen, Let’s check for uncommon situations. Next to Nontaxable Medicaid waiver payments, check the box.  
6. You will enter the amount of Medicaid Waiver Payments into the box asking for the total amount of difficulty of care payment you received from IHHS. This will be the same amount reported in Boxes 3 and 5 of your W-2.  
7. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

If you received a 1099 or no form:  

1. Sign in to TurboTax Online, click Continue your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Scroll down to Less Common Income;       
4. Click on Start next to Miscellaneous Income, 1099-A, 1099-C.  
5. Click on Start next to, Other income not already reported on a Form W-2 or Form 1099;      
6. Answer Yes to Did you receive any other wages?;      
7. Leave blank the box for Wages earned as a household employee and click continue;  
8. Leave blank the box for Sick or disability pay and click continue;       
9. Enter the amount of Medicaid waiver payments on Certain nontaxable Medicaid waiver payments not reported on Form W-2, and click Continue.  
10. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

For more information, refer to IRS Notice 2014–7, 20144 I.R.B. 445 and the IRS FAQs.   

[Lanettas1]

Did you get the answer to your question. I'm needing to know the same question.

[CatinaT1]

TurboTax can exempt income under Notice 2014-7 per the IRS instructions for Medicaid Waiver payments from IHHS. This Notice provides that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver (Medicaid waiver) program are difficulty of care payments and excludable as income. Additionally, you can choose to use this income to calculate Earned Income Credit. Regardless, the income will remain non-taxable.     

Ensure you entered it according to these instructions: How do I enter my tax-exempt Medicaid waiver payments from IHSS in TurboTax?