I called IHSS. Not everyone who gets IHSS payments can claim them as tax exempt. IHSS said the situation has to be a biological relative, e.g., mother taking care of a son, and the two live in the same domicile. And here's a slightly different answer from the one above from the IRS publication, <a rel="nofollow" target="_blank" href="
https://www.irs.gov/Individuals/Certain-Medicaid-Waiver-Payments-May-Be-Excludable-From-Income">http...>. Basically, put your W2 IHSS income in the normal spot but put the negative value of that under Misc. Income, line 21, as described above.
If you are not able to obtain a Form W-2c, Corrected Wage and Tax Statement, from the agency reporting the correct amount in box 1 of Form W-2, you should include the full amount of the payments reported in box 1 of Form W-2 as wages on line 7 of Form 1040. You should then subtract the excludable portion of the amount in box 1 on line 21 “Other income,” of Form 1040. If you have other income reportable on line 21, you should enter the net amount after subtracting the amount excludable from gross income under Notice 2014-7 from the other amounts reportable on line 21. You may need to enter a negative amount on line 21 if you have no other income reportable on line 21, or if the amount of other income you must report on line 21 is less than the amount excludable from gross income. You should write “Notice 2014-7” on the dotted line for line 21 if you file a paper return, or enter “Notice 2014-7” on line 21 for an electronically filed return.
