Hal_Al
Level 15

Get your taxes done using TurboTax

It appears that you have a "Difficulty of care" payment, which is not subject to income tax, but is subject to FICA (social security and medicare tax).

 

You can enter the W-2, exactly as received and it won't be taxed.

 

But, if you want it to count for the earned income credit and/or the child tax credit, enter  $10,481.47 in box 1 at the W-2 screen.  You will later take a deduction for that amount.

2022 New this year:  The IRS has provided a place to deduct (line 8s of Schedule 1) the nontaxable income (but still allow you to claim the Earned Income credit based on that income).

TurboTax now smoothly handles it (it was complicated in previous years). At the end of the W-2 screens, you will encounter a screen titled "Let's check for uncommon situations". Check the box at "Non taxable Medicare waiver payments that qualify as difficulty of care payments". On the next screen, indicate the amount ( $10,481.47).

 

Reference: 

 https://www.irs.gov/Individuals/Certain-Medicaid-Waiver-Payments-May-Be-Excludable-From-Income

View solution in original post