Yes, IHSS is not taxable and needn't be entered HOWEVER it CAN be used to get a better Earned Income Credit on your Federal or CA return.
If it does increase your Earned Income Credit, you must claim ALL of it, so you can't decide to report only a portion of the income. It's all or none.
They are not supposed to be using a W-2 for reporting that income.
If you decide to enter the income, this is how you do that in TurboTax:
Entering into TurboTax is a bit confusing so please follow these steps carefully.
Sign into TurboTax and continue through until you can start selecting "Wages & Income" located at the top of the screen
Click on Wages & Income
Select answers to the questions which follow if necessary to move forward
Click Add more income
Scroll down to the VERY LAST option "Less Common Income" and click Show more
On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click START
On this new drop-down list scroll to the VERY FIRST option "Other income not already reported on a Form W-2 or Form 1099"
Click START
Select YES to the page titled "Other Wages Received" and Continue
Select CONTINUE on the "Wages earned as a Household Employee" screen (enter nothing here)
Select CONTINUE on the "Sick or Disability Pay" screen (enter nothing here)
Select "Yes" on the "Any Other Earned Income" screen and continue
Select "Other" on the "Enter Source of Other Earned Income" and Continue
In Description Box type "Qualified Medicaid Waiver Pay" and the amount
(NOTE- YOU MUST ENTER ALL THE INCOME OR NONE)
Click Done
This will put the income on your 1040 line 1 where it needs to be.
Next, you need to make an entry so that TurboTax will make the income exempt from tax.
(NOTE- AT THIS POINT, YOU MAY NOT OWE ANY TAX ON THE INCOME AND YOU MAY ALREADY HAVE THE EIC CREDIT INCLUDED IN YOUR REFUND, THEREFORE THE NEXT STEPS MAY OR MAY NOT CHANGE THE FEDERAL REFUND METER ON TOP OF THE TURBOTAX SCREEN)
(you will be repeating some steps, but not all)
Go back to the Wages & Income section
Scroll down to the VERY LAST option "Less Common Income" and click Show more
On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click REVISIT
Now scroll down to the VERY LAST option "Other reportable income" and click Start
Select YES on the "Any Other Taxable Income?" screen
Type "Tax Exempt Income on line 1" and the same amount you entered before but as a NEGATIVE (put a minus sign - in front of the number)
This NEGATIVE number should show on your 1040 line 8
TO CHECK IN TURBOTAX ONLINE:
Click "Tax Tools" on the LEFT SIDE BAR then click "Tools" that open below
Click "View Tax Summary" on the screen
Click "Preview my 1040" which now appears on the LEFT SIDE BAR
Scroll through the 1040.
The amount of income should be on line 1
The adjustment (negative) should be on line 8
EIC is on Line 27
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