IHSS Live-In W2

[jentax101979]

I am a live-in IHSS caretaker.  I have no income (per IRS Notice 2014-7) report on my W2 but have both Federal and State tax withhold from my W2.  How do I input my W2 to claim the tax deductions in Turbo? 

Also, may I contribute to IRA using the IHSS exempted earnings?

Thanks

Jen

[MaryK4]

You will need to enter the W-2 with the income in Box 1, then you negate by adding Miscellaneous Income:

1. Scroll down the page to the last section titled: Less common Income 
2. Select start or update next to the last topic titled Miscellaneous Income, 1099-A, 1099-C;
3. Scroll down to the last option titled Other reportable income 
4. When it asks, "Any other reportable income?" say yes
5. 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)

[jentax101979]

Thank MaryK4:

My IHSS W2 box 1 listed '$0.00' for income.  Do I enter the W2 first under the regular W2 section, then deduct the same amount as a negative income under 'Other Misc Income' ?   There were Social Security,  medicare, and CASDI taxes taken out.

Thanks

J

[MonikaK1]

TurboTax was updated to address the situation where you have zero in Box 1 of your W-2. If you are in California and have a zero in Box 1 of your W-2 for IHSS Difficulty of Care income, see the revised steps below:

If you entered something in the Less Common Income area, that needs to be deleted. 

Then, go back and edit your W2 entry. 

1. You are going to enter your W2 exactly as it is, even with the 0 in box 1.
2. The next question is going to ask you to take another look to ensure your entries are correct, select continue.
3. You will get a screen that looks like this screenshot 

1. Next, you will be asked to enter the total amount of difficulty of care payment you received. Enter the amount here.
2. Go to the Deductions and Credits tab and go to Earned Income Credit.
3. Go through the eligibility questions, and then you will get to a screen that says: Let's check if you can get a bigger credit. It will look like this:

You DO want to include your payments for the calculation of the credit.

See here for a recently revised help article that explains these steps, and the alternative steps if the income was incorrectly included in Box 1.

[Edited 04/13/23| 10:09am PST] 

@jentax101979 (edited) 

[rulesareconfusing]

Hello, does this apply to Roth IRAs? IRS Pub. 590-A does not talk about this as compensation and only mentions it under the nondeductible contributions section of the traditional IRAs chapter in relation to increasing the nondeductible IRA contribution limit. Roth IRAs are supposed to have the same rules as Traditional IRAs unless noted, so I assume this also applies to Roth IRAs.

Some tax professionals and IRS employees say that IRS Pub. 590-A makes it clear that this only applies to nondeductible contributions to traditional IRAs, not Roth IRAs. They say that Roth IRAs require taxable compensation, and the difficulty of care payments section does not apply to Roth IRAs. This all sounds very counterintuitive.

I was hoping you could provide some clarity. Thank you!

[DaveF1006]

Yes, look under Can You Contribute to a Roth IRA in Publication 590. it clearly states you must have taxable income in order to make a qualified Roth contribution. Since Difficulty of Care Payments is not taxable income, it does not qualify.

There is some latitude given if the contribution was to a Traditional IRA, but not for the Roth, it clearly states that qualified Roth contributions must be from taxable income. This is a strict guideline that must be followed, no matter how counterproductive it may seem.

@rulesareconfusing 

[rulesareconfusing]

Thanks for your input. I replied in the other post, which is more specific to the topic of Roth IRAs.

@DaveF1006