IHSS Untaxed Income Causes My CA Refund to go UP

[MagooGuy]

Hello,

Normally I don't enter my W-2 for untaxed IHSS income ($0 in box 1). But every few years I enter it to see if it changes my tax refund. Tax code is complicated and you never know what could be new. As many have suggested I enter $1 for box 1 so I can e-file. I do pay Social Security and Medicare taxers. When I enter the W2 my federal refund doesn't change. However my CA refund goes up by the amount I paid in Social Security and Medicare taxes. 

Is this normal? This seems like a bug in Turbo Tax. I'm most likely going to delete the W2.

Thanks

[MonikaK1]

If you enter a W-2 with $1 in Social Security earnings but Social Security taxes on the entire amount you earned, the program thinks you were overtaxed for Social Security and Medicare.

Go back to the Wages section and edit your W2 entry. 

1. 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 

Check the box as indicated and follow the prompts.

See this help article for more information including how to include this income for Earned Income Credit.

[MagooGuy]

So I need to clarify. I have entered the form correctly.

Box 1: has $1 so I can e-file. Entering $0 doesn't change the result.

Box 3: Has the amount that was paid to me. The social security tax in box 4 is correct for the amount in box 3.

Box 5: Has the amount that was paid to me. The Medicare tax in box 6 is correct for the amount in box 5.

Box 14: Has the CA-SDI that I paid.

California and local taxes information is all $0 

California shouldn't care about the amounts in boxes 4,6,14. I'll get the rest of my return done and then see where it sits. But in the end I'll delete it.

thanks

[CatinaT1]

Both the IRS and California allow Medicaid Waiver Payments to be included or excluded in the computation of the EIC. I am guessing your refund is going up due to Earned Income Credit.

Tax-Exempt Medicaid Waiver Payments from IHHS  

TurboTax can exempt income under Notice 2014-7 per the IRS instructions for Medicaid Waiver payments from IHHS. This Notice provides that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver (Medicaid waiver) program are difficulty of care payments and excludable as income. Additionally, you can choose to use this income to calculate Earned Income Credit. Regardless, the income will remain non-taxable.     

This tax-exempt income can be reported to you differently depending on the State and County you live in. You might receive a W-2, 1099, and no form at all.   

See the instructions below for how to report this depending on how the income was reported to you.  

If you received a W-2 with $0 in Box 1:  

1. Sign in to TurboTax Online, click Continue to your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Under Wages and Income, click Start;      
4. Click on Work on my W-2, and enter the information as reported on your W-2.     
5. After entering all your W-2s, you will see the screen, Let’s check for uncommon situations. Next to Nontaxable Medicaid waiver payments, check the box.  
6. You will enter the amount of Medicaid Waiver Payments into the box asking for the total amount of difficulty of care payment you received from IHHS. This will be the same amount reported in Boxes 3 and 5 of your W-2.  
7. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

If you received a 1099 or no form:  

1. Sign in to TurboTax Online, click Continue your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Scroll down to Less Common Income;       
4. Click on Start next to Miscellaneous Income, 1099-A, 1099-C.  
5. Click on Start next to, Other income not already reported on a Form W-2 or Form 1099;      
6. Answer Yes to Did you receive any other wages?;      
7. Leave blank the box for Wages earned as a household employee and click continue;  
8. Leave blank the box for Sick or disability pay and click continue;       
9. Enter the amount of Medicaid waiver payments on Certain nontaxable Medicaid waiver payments not reported on Form W-2, and click Continue.  
10. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

For more information, refer to IRS Notice 2014–7, 20144 I.R.B. 445 and the IRS FAQs.   

[MagooGuy]

I have narrowed down my issue to the following:

1. You will enter the amount of Medicaid Waiver Payments into the box asking for the total amount of difficulty of care payment you received from IHHS. This will be the same amount reported in Boxes 3 and 5 of your W-2.  

Everything comes down to the amount in that box. If I put $0 dollars in that box then everything is perfect. If I put the amount in as directed above my CA refund goes from $1000 to $2300.

I don't qualify for any EITCs. My income is too high. I even used several online EITC calculators to verify. I'm single and no kids. Using the Medicaid Waiver Payments to calculate EITC I still get a big fat $0.

My federal return uses the standard deduction. My CA state return is itemized. If I do my CA by hand I get the $1000 refund.

So can anyone tell me what turbo tax is doing with the amount in that box on my CA return? Short of paying for Turbo Tax so I can view my CA return, where in Turbo Tax can I see the amount applied?

Thanks

[MonikaK1]

If you have other employment besides IHSS, it is possible that you paid excess Social Security taxes for the year, and this only shows up if you enter the Social Security and Medicare taxes from the IHSS W-2 and that is the cause for the increased refund.

You can view a summary of your California return by selecting Tax Tools from the left side menu, then Tools, then View Tax Summary. Then, the left side menu should show CA Tax Summary as one of the choices to view.

You do not need to enter $1 in box 1 in order to e-file if you designate the W-2 as nontaxable Medicaid waiver payments, as shown in my previous reply.

Otherwise, you can send us a “diagnostic” file that has your “numbers” but not your personal information for us to troubleshoot the issue.  If you would like to do this, here are the instructions for TurboTax Online users: 

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools. 
2. A window will pop up which says Tools Center.  
3. On this screen, select Share my file with Agent. 
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number. 
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.  

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

If you are using TurboTax Desktop please comment back and I will give you those instructions.