Please refer to the instructions below for how to enter "Difficulty of Care" payments, which are exempt income under Notice 2014-7. This notice provides that certain payments received by an individual care provider under a state Medicaid waiver program, are difficulty of care payments and excludable as income.
If these payments are paid to you in box 1 of form W-2 (they should not have been), first try to get a corrected Form W-2 from the payer. If you cannot get a corrected Form W-2, do not enter the W-2 in the Wages & Salaries topic. Instead enter it as instructed below:
- Open your Federal return then click on the Wages & Income tab
- Scroll down to Less Common Income and Show more
-
Start or revist Miscellaneous Income, 1099-A, 1099-C
- Choose Other Reportable Income and select start or edit
- When you get to the screen "Any other reportable income?" say Yes.
- Make the following two entries:
1. Your first entry description would be "W-2 EIN # number from W-2, Box 1 Medicaid Waiver Payments, and enter the Box 1 amount as a positive number.
2. Next you will "Add Another Miscellaneous Income Item," and enter the description: IRS Notice 2014-7 excludable income and enter the W-2 Box 1 amount as a negative number.
This both shows and explains removing the W-2 income, placing a zero on Line 21 of your Form 1040.
If your W-2 has federal or state taxes withheld, you can enter these amounts in Deductions & Credits under Other Income Taxes as Withholding not already entered on W-2.
