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This not the same as the income exclusion under Notice 2014-7. That exclusion is taken in the federal return and Calif uses federal AGI so it's already excluded in your Calif return.
From the Calif Publication 1001:
California law allows an exclusion from gross income for IHSS
supplementary payments received by IHSS providers. IHSS
providers only receive a supplementary payment if they paid a
sales tax on the IHSS services they provide. The supplementary
payment is equal to the sales tax paid plus any increase in
the federal payroll withholding paid due to the supplementary
payment.
What do you mean by sales tax? Is it the same as Federal tax?
If you are asking if you need to make an additional entry on your state return for In-Home Support Services, then generally, you will not need to enter any additional information if everything was entered correctly on your federal return. (Please see the steps listed below.) Information on your federal return is automatically transferred to your state return and only certain adjustments are entered on the state return.
If you are asking how to report a supplemental payment other than In-Home Support Services where you lived with the recipient of the services, this generally would be taxable income and would be reported differently. Supplemental payments are Medicaid payments to providers that are separate from and in addition to the payments for services rendered to Medicaid enrollees. Examples of supplemental payments include quality initiatives and graduate medical education. These payments would be reported in the W-2 section under Wages and Income.
Per IRS Notice 2014-7 and the California Department of Social Services, wages received for In-Home Supportive Services by providers who live with the recipient of those services are not considered part of gross income for federal or state income tax purposes. This type of payment is specifically excluded from income; however, in a recent court case, it was ruled that Medicaid Waiver Payments are considered "earned income" for purposes of calculating the earned income tax credit. A taxpayer can choose to include Medicaid Waiver Payments as Wages on line 1 of Form 1040 (even if not reported on a W-2) in order to claim the credit. Then an adjustment is entered on Schedule 1, line 8 so the payments are not included in taxable income. Please see the steps below:
NOTE: This will both show the W-2 on your return and explain why it is not taxable.
[Edited 02/11/20 | 5:33pm PST]
Reporting IHSS income for providers living with client has been explained in a very simple way. Thanks!
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On 6/11/2022 we received a **"Notice of Tax Return Change - Revised Balance"** demanding a balance of $694.00.
The FTB cited the CA AGI was miss reported, that the gross income should have been 14,210.00 higher. Yet the Federal AGI amount, which excluded IHSS Income, was transferred by Turbo Tax directly to the CA 540 form as instructed by CA's Instructions. The CA Form 540 says "Enter federal adjusted gross income from federal Form 1040 or 1040-SR, line 11 ........ 13"
This difference ($14,210.00) is from IHSS wages, which are considered in, my case, excludable.
In my federal return, I reported the IHSS Income as Misc Income with a negative figure and this explanation:
Per IRS Notice 2014-7 excludable income. IHSS "difficulty of care" payments, referred to as Medicaid Waiver payments are excluded from gross income pursuant to IRC section 131(c).
Does this mean the qualifying IHSS income should have been reported differently in Turbo Tax??
On 6/11/2022 we received a **"Notice of Tax Return Change - Revised Balance"** demanding a balance of $694.00.
The FTB cited the CA AGI was miss reported, that the gross income should have been 14,210.00 higher. Yet the Federal AGI amount, which excluded IHSS Income, was transferred by Turbo Tax directly to the CA 540 form as instructed by CA's Instructions. The CA Form 540 says "Enter federal adjusted gross income from federal Form 1040 or 1040-SR, line 11 ........ 13"
This difference ($14,210.00) is from IHSS wages, which are considered in, my case, excludable.
In my federal return, I reported the IHSS Income as Misc Income with a negative figure and this explanation:
Per IRS Notice 2014-7 excludable income. IHSS "difficulty of care" payments, referred to as Medicaid Waiver payments are excluded from gross income pursuant to IRC section 131(c).
Does this mean the qualifying IHSS income should have been reported differently in Turbo Tax??
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