Medicaid waiver (2014-7)

[wb59]

In entering all W2 information (wages box 1 and box 12a code II amounts) into the 2024 Turbotax program, I am seeing a positive dollar amount displaying in row 1d in the income section.  This amount should represent the exempt amount based on notice 2014-7.  The amount listed on row 1d (medicaid waiver amount) is then included in the total income and AGI amounts which are increasing the tax burden.  It seems that it is inappropriate to include 1d as taxable income or it should be offset by the amount listed in schedule 1, orw 8s.  In looking at schedule 1, there is a negative amount listed on row 8s which is then offset by the same amount listed as a positive amount on row 8z (net zero amount on schedule 1). 

Why does the excludable income from the medicaid waiver program get included in the total and AGI amounts?

[Vanessa A]

It actually doesn't get included in the AGI since it is backed out.  It is added and included and then  backed out because it needs to be reported to the IRS since it is on the W-2 AND for those people who can also claim the Earned Income Tax Credit or Additional Child Tax Credit, the numbers need to be added in so they can be counted.

But in the end, the numbers that you entered from box 12 code II that went onto line 1d are not included in your AGI.  Any numbers you entered from box 1 are included in your AGI. 

[wb59]

Your description is exactly what I thought should happen.  However, that is not what I'm seeing.  The amount listed on row 1d is being included in the total income (row 10) and AGI amounts (row 11).  I suspect this is due to the net zero amount from schedule 1 (rows 8s and 8z are equal amounts of negative and positive values).  Is this a coding glitch in the 2024 version or is there a way to manually delete the information from schedule 1 row 8z?

[Vanessa A]

Are you using the online or desktop version?  Do you have other income?  You said you had an amount in box 1, correct?  If so, do you see that amount in box 1a?  Is the amount in box 1 the same as the amount in box 12?  Line 8 will ONLY back out line 1d and then line 11 which is your AGI will not include line 1d, but if you entered the same amount in box 1, it will appear as though it is still included.  

Is part of the income on the W-2 for this not part of the IHSS payments or is the entire W-2 wages earned from Difficulty of Care?

[wb59]

I am using the desktop version of Turbotax Deluxe.

I did have other income in 2024.  One month's worth of income from another job and two small bonuses should not and were not included in the exclusion (this amount is listed in box 1 of the W2 and row 1a in the income section of  Turbotax).  The amount shown in box 1 of the W2 does not include the waiver payment amount (the waiver payment component is listed on row 12a II of the W2).

The amount in box 1 is not the same as that listed in box 12a on the W2s.  The amount listed in box 12a accurately reflects the amount of income that is related to the 2014-7 notice.  The amount listed in box 12a of the W2s is also the amount listed on schedule 1 ... rows 8s (negative amount) and 8z (postive amount) which net out to zero.

I am also seeing the amount listed in box 12a on the W2s on row 1d in the income section.  Rows 1a through 1h (which includes row 1d) are then being added to get the income total which displays on row 1z.

Line 8 displays as zero since this is the amount listed on row 10 of schedule 1.

Everything looks appropriate except for row 1d which lists the Medicaid waiver payments not reported on form W2.  Since this income (box 12a II on the W2) is part of the waiver payments, it should not be included in income ... right?

[Vanessa A]

Everything looks appropriate except for row 1d which lists the Medicaid waiver payments not reported on form W2.  Since this income (box 12a II on the W2) is part of the waiver payments, it should not be included in income ... right?

Yes and no.  The IRS added code II in box 12 as kind of a catch all.  It cannot be properly reported in box 1 or it will be taxed.  So then it is separated out on line 1d because it is not included in box 1. So the IRS wants the amount not reported in box 1 of your W2 to be included on line 1d of your return and then on Schedule 1 it is backed out.  

Line 10 on Schedule 1 should be a negative to the amount on line d.  If it is not did you enter box 12 code II?  This is how it gets the negative.

Medicaid Waiver Payments Not Reported on Form(s) W-2, Box 1 Enter your taxable Medicaid waiver payments that were not reported on Form(s) W-2. Also enter the total of your taxable and nontaxable Medicaid waiver payments that were not reported on Form(s) W-2, or not reported in box 1 of Form(s) W-2, if you choose to include nontaxable payments in earned income for purposes of claiming a credit or other tax benefit. Form 1040 Instructions page 24

[wb59]

I believe I have figured out what was causing the problem. 

I did enter information into row 1d and that amount does display as a negative value on schedule 1 row 8s.  The issue is that data from a previous return (I imported a past return into the 2024 version) was displaying in schedule 1 row 8z as a positive amount that exactly offset row 8s.  This resulted in schedule 1 row 10 and row 8 on the income tax return to display as "0" rather than the negative amount listed on schedule 1 row 8s (and on the W2 box 12a).

Is it correct that there should be nothing displaying on schedule 1 row 8z based on the Medicaid waiver amount listed on the W2 box 12a?

[Vanessa A]

Yes, it is correct that there should be nothing listed on Schedule 1 row 8z.  The negative offset should be on Schedule 1 line 8s. 

[wb59]

Perfect.  Mystery solved.  Thanks for all your help.