The income is exempt from income tax, but not FICA (social security and medicare) tax.
A recent court case now makes Medicare waiver payments eligible for EIC, even though they are not taxable*.
It's a little tricky entering in TurboTax. If you got a W-2 for the IHSS, enter it at the W-2 screen.
Then to back out the non-taxable part by making a separate negative entry as follows:
In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in Home & Business)
- Wages & Income
Scroll down to:
-Less Common Income
-Misc Income, 1099-A, 1099-C
- On the next screen, choose – Other reportable income
- On the next screen, click yes
- On the next screen, you'll get blanks to enter the amount and a description. Enter the description IRS Notice 2014-7 excludable income and enter the W-2 box 1 amount as a negative (-) number. This places an offset on line 8z of Schedule 1, making the income not taxed, but still eligible for EIC.
One requirement, for the income exclusion, is that it must be paid through a "Medicaid Waiver Program". Another requirement is that you live with the care recipient .
*The Instructions to Form 1040 now state that you report it as taxable income on Line 1, then 'back it out' on line 8z of Schedule 1. That way, that income will qualify for the Earned Income Credit.
