Get your taxes done using TurboTax

Since you received a W-2, you should enter the information in TurboTax and then show an offset for this entry so that you will not be taxed on the payments. This will reconcile your tax return with what the IRS has received and then show the corresponding offset to explain why it is not taxable. You will also be able to recover the federal and state taxes that were withheld from your payments. Please see the steps listed below to enter your W-2 into TurboTax.

It is also important to inform you that a recent court case, ruled that IHSS payments and Medicaid Waiver Payments are considered "earned income" for purposes of calculating the earned income tax credit and other credits. Even though the income is not taxable for income tax purposes, a taxpayer can choose to show the payments as earned income in order to claim a credit. Please see IRS Form 1040 Instructions (page 21) for more information.

The instructions below include steps to enter the payments as earned income to receive a credit or to report them as unearned income. Either way the payments will not be subject to federal or California state income taxes.

1. Log into TurboTax and click on any topic to continue
2. Click on Federal from the menu on the left-hand side and then click on Wages & Income at the top
3. If you choose to report your payments to receive a credit: Click Edit/Add next to Job (W-2) and then click on Add a W-2.
4. Enter the information as reported on your W-2. Enter the amount you received for IHSS Payments in Box 1 (even if this amount is not reported in box 1 of your W-2.)
5. If you choose not to report it as earned income to receive a credit: Scroll down to "Less Common Income" and click on Show More.
6. Click on Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C. Then click on Start or Revisit next to Other reportable income and select Yes
7. Enter "In-Home Support Services Payments, EIN # (enter EIN number from W-2)" in the description box and then enter the amount from your W-2. Click Continue.
8. To enter the offset for the payments (whether you chose to report as earned income or not): Click on Wages and Income at the top of the screen. Scroll down to "Less Common Income" and click on Show More. 
9. Click on Start or Revisit next to Miscellaneous Income and then click on Start or Revisit next to Other Reportable Income and select "Yes" or "Add Another Income Item" if applicable
10. In the "Description" section, enter "IRS Notice 2014-7 excludable income" and in the "Amount" section, enter the W-2 box 1 amount (or amount of IHSS Payments) as a negative (-) number.