Yes, you can treat the IHSS income as earned income for purposes of your IRA contribution. It will not be taxable on your federal or state tax return.
In the Federal section of TurboTax, follow these instructions to enter your IHSS income and a credit to remove it from taxation:
1. In the Wages and Income section of TurboTax find Less Common Income
2. Choose Miscellaneous Income from the list , then Other Reportable Income
3. Choose Other Income not already reported on a W-2 form
4. Answer "Yes" on the screen that says Other Wages Received
5. Continue through the screens until you come to the Other Earned Income screen - answer "Yes"
6. Choose the Other option on the screen referencing the source of earned income
7. Enter "Notice 2014-7" for the description on your IHSS income and the amount on the screen that says Other Earned Income
8. Repeat steps 1 and 2 above
9. Indicate that you have other taxable income when asked
10. Enter "Notice 2014-7" for the description and your IHSS income as a negative number
You can include the income for California and federal tax purposes as it relates to an earned income tax credit, but exclude it from taxation. You must include all of the income however, you are not able to choose a smaller amount to reduce your tax liability.
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