IHSS Exempt Care Provider - Issues with Earned Income Credit After Filling Out W-2 Information

[BigRabit1]

Hi all,

I’m an IHSS Exempt Care Provider (Live-In) in California, and I’m running into an issue while filing my taxes using TurboTax.

Here’s the situation:

1. My W2 has $0 in Box 1 as it's exempted from Federal tax. My Box 3, 5, 12A have the same wage amount (let's use the fictitious number $5000) . I followed the instruction here and entered my W-2 information in Turbo Desktop Software.
2. I checked the box for “Nontaxable Medicaid waiver payments” and entered the full amount from Box 3 (Social Security wages) into the Nontaxable Medicaid waiver payments section.
3. However, when I get to the “Earned Income Credit” section under Deductions & Credits, TurboTax says "It turns out you don't qualify for this credit."

I tried a few variations:

• First, I left Box 1 as zero (as it should be).
• Then, I tried filling in Box 1 with the same amount from Box 3 (Social Security wages).

In both cases, I’m getting the same response from TurboTax in the Earned Income Credit section: "It turns out you don't qualify for this credit."

Has anyone else experienced this issue? I’m trying to figure out if I’ve missed something in the process or if this is a common situation for IHSS providers. Any help or guidance would be greatly appreciated!

Thanks in advance for your help!

Screenshot below.

[Vanessa A]

Delete the W-2 you entered and try to enter your IHSS payments by following these instructions:

1. Select income
2. Miscellaneous Income which is under Less Common Income
3. Other Income Not already reported on a Form W-2 or Form 1099
4. Select Yes to did you receive any other wages
5. Continue to the box that asks for your Medicaid Waiver payments
6. You will be asked about using this income for the Earned Income Credit
7. After you do this, you will need to visit the credits and deduction section to answer the Earned Income Credit questions.
8. Continue through to file your return

Also, are you sure you do qualify for the Earned Income Credit?  Click here to be sure you qualify. 

[BigRabit1]

Thank you!

1. You are correct that I don't qualify for the Earned Income Credit. I won't be able to claim it.

2. But are you sure I don't report this W2 in the standard Turbo W2 section? If I use your reporting method, how would I ensure that my SS wage and tax withheld, Medicare wage and tax withheld from my W2 are properly reported and recorded?

Should I do the following?

• Still add the W2, including Box 3,4,5,6,14.
• Then leave Box 1 and 12A empty, as I have reported the tax-exempt income in the Miscellaneous Income section?

[DianeW777]

Yes, you should not be taxed on the income due to special tax laws surrounding this medicaid waiver care. Use the link below to enter your W-2 for these wages. It should not be taxable on your return and there is no concern about your social security and medicare tax withheld.

• How do I enter my tax exempt Medicaid waiver payments from IHSS in TurboTax?

@BigRabit123 

[BigRabit1]

Hi Diane,

Thank you. But your instruction is the opposite of Vanessa's earlier instruction.

• You instruction is to fill in all my W2 info, except for Box 1.
• Vanessa's instruction is to Delete the W-2 I entered and enter the IHSS payments as Miscellaneous income.

1. Which option should I use?
2. When I tried your option, Turbo added the $5000 of tax-exempt wage (from Box 12A) back to my overall tax liability. I'm not eligible for Earned Income Credit. But the $5000 of IHSS care wage should still not be added to the tax section. 

Could you help? On Reddit, folks with similar IHSS wages are saying that they used taxfreeusa.com and HR block, and successfully have file with IHSS wage not added to tax liability.

[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.

[202684]

Hello, I did get a W-2 with Fed and State tax withheld... I followed the steps to enter the W-@ as miscellaneous income, but I do not see a spot for the tax taken out on the w-2.... Any pointers

[MonikaK1]

If your W-2 had Federal and State taxes withheld, then likely either your IHSS income does not meet the qualifications to be exempt from tax (for example, if you did not live with the person for whom you provided care), or the payer has made an error. Contact the payer for clarification if needed.

Is there income in Box 1 that exceeds the amount of the withholding? If not, that situation would create an e-file error. And yes, there isn't a place to enter withholding in miscellaneous income.

See this IRS FAQ page for more information about when IHSS wages are taxable and when they are tax-exempt.

@202684