How to exclude IHSS earnings and still claim EIC on TurboTax system in 2021 for the 2020 tax year?

[Critter-3]

Sorry but you cannot enter excluded income to get any credits ... you cannot have the income excluded AND get the credits ... it just doesn't work that way.

[Jess106]

I am excluded from federal taxes on that income, they passed a law that I CAN claim earned income credit on it. Thats what the first post in this thread is about. 

[allimacsnwod]

Hi,

I'll preface by saying I'm not a tax professional. 

Yes, back it out per the detailed instructions. I've done it for the past two years. It holds up my return, but I request a TAS advocate, and once they look into it, they give it the all clear to be processed. (If you get a TAS, have notice 2014-7 and the this https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income, Question #9.) Once you explain it, they'll give it the all clear.

Camilla

[megank1]

allimacsnwod

I have a W2 Medicaid Waiver Payment from IHSS.

Box 1 = blank <<<---------for Federal Return

Box 3 and 5 = $9,000

Box 16 = blank  <<<----------for California State Return

No withholdings

On "2022 Federal Return", I enter the W2 normally on Turbo Tax and the full amount $9,000  transfer to form 1040 line "1d", NOT 1a because this amount is not on W2 box 1. After I am done with Federal, I receive this EIC. However, when I transfer all the Federal information to California State Return, I get $0 earned income  tax credit. I have no idea how to include all my Medicaid Waiver Payment in California to get the CAEITC. Have any idea how?

[DaveF1006]

According to CynthiaD66, she states "Federal EIC computation allows Medicaid Waiver Payments in the computation of the EIC.

California requires earned income to be able to claim the EIC.  $1 of earned income allows computation of the credit if other requirements are met.  See this California EIC computation link for additional information. 

In your case, do you have other earned income reported besides the Medicaid Waiver payment".

[megank1]

DaveF1006

Medicaid Waiver Payment is my only earned income. So you are saying Medicaid Waiver Payment I cannot get the California earned income tax credit? 

[Cynthiad66]

Yes, you may claim the Earned Income credit using this income.

IHSS income may now be excluded from gross income (excluded from taxation) and still be included as earned income for purposes of determining the California Earned Income Tax Credit.

CalEITC and Other Credits

California requires earned income to be able to claim the EIC.  $1 of earned income allows computation of the credit if other requirements are met.  See this California EIC computation link for additional information. 

"Federal EIC computation allows Medicaid Waiver Payments in the computation of the EIC.

@megank1

{Edited | 3/14/2023 7:25 AM PST}

[megank1]

Cynthiad66

My Medicaid Waiver Payment W2 shows:

Box 1 = blank

Box 3 and 5 = $9,000

Box 16 = blank

No withholdings

Like I said before, after I included all Medicaid Waiver Payments, I could get Federal EIC. After I transferred all Federal information to California, I could not get the CAEITC. It just shows $0. I hope tax experts instead of telling me I can get the California earned income tax credit, please show me how using "Turbo Tax 2022" software and NO Turbo Tax  2021  or earlier. Those are outdated examples.

[kgryting]

I believe I am having the same issue with the state of MN.

Last year, there was a very "cludgy" way to get it in MN and I had to send the return in by mail instead of e-filing.  This year, the federal form was very smooth and worked great with the new lines specifically about medicaid wages, but the MN forms in TurboTax keep saying ZERO credit.  I've narrowed it down to one worksheet that is different from last year in my state return, but have not yet looked at the details to see why it's so different.

Given the changes to the federal forms, I would have hoped TurboTax would have accounted for that in its state products.  Bummer.

[DaveF1006]

This is a known issue in Turbo Tax and we have a team of experts working diligently to get this issue resolved.  Currently, we do not have an ETA on when this is to be resolved but please check back periodically to find out the status of this update.

We apologize for the inconvenience and thank you for your patience.

@kgryting @megank1  @queentsfc 

[kgryting]

Thanks @DaveF1006   Very glad to hear it's on the TurboTax radar.   How would we find out when an update would address this?  Would anyone think to post a reply here?  Or do we just keep updating and checking the results of our state credit?

[DaveF1006]

I think the best course of action is to keep visiting and posting on this post to find out if a solution has been discovered. We are working diligently in trying to resolve this but unfortunately we do not have a timeline for the resolution.

@kgryting 

[kgryting]

@DaveF1006   Will do, thanks.

[megank1]

On 2022 Federal form 1040 there are 1a and 1d for Medicaid Waiver Payments. Line 1a is for MWP W2 box 1 and 1d is for MWP not on W2. Prior to 2022 1040, there was only one line 1 for both MWP or not.  I guess people entered the full MWP amount normally on Turbo Tax(2021 and earlier)from W2  box 1, not on box 1, and box 16 . That is why they got all the earned income credit from Federal and State I guess.  In 2022 tax return,  1040 lines are separated and instruction changed, maybe that's why it didn't transfer to California to get the CAEITC. I hope I am wrong. I hope someone knows how to get the 2022 California EIC. 

[CatinaT1]

See DaveF1006's message above. 

The entry is different this year in TurboTax for Medicaid Waiver Payments, but that is not the issue. 

California now follows the IRS rules for excluding MWP from taxable income but allows that income for EITC purposes. That is NEW. Previously you had to have at least $1 of taxable income to be eligible for EITC. As DaveF1006 said, this is a known issue.