You will need to enter the W-2 with the income in Box 1, then you negate by adding Miscellaneous Income:
- Scroll down the page to the last section titled: Less common Income
- Select start or update next to the last topic titled Miscellaneous Income, 1099-A, 1099-C;
- Scroll down to the last option titled Other reportable income
- When it asks, "Any other reportable income?" say yes
- Next you click "Add Another Miscellaneous Income Item," and enter this description: IRS Notice 2014-7 excludable income and enter the W-2 Box 1 amount as a Negative (-) number.
Yes, you can use this as compensation for determining IRA contributions. The SECURE Act allows In-Home Supportive Services (IHSS) workers to treat excludable difficulty-of-care payments as earned income for purposes of calculating the worker's IRA or defined contribution plans contribution limits, applicable for defined contribution plans to plan years beginning after December 31, 2015, and with respect to IRAs, to contributions after December 20, 2019 (IRC §§408(o), 415(c)(3); SECURE Act §116)
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