Medicaid Waiver Payments

[Rumpelstilschen]

I received Difficulty of Care (IHSS) payments for 2022.  I did not receive a W-2 or 1099, nor were any taxes withheld.  Do I HAVE to report this non-taxable income under the 'Miscallaneous Income / Other Income not already reported on a Form W-2 or Form 1099' section?.  TT seems to indicate that reporting this is voluntary "...and you want to include such payments...".

When I do report it, although it is backed out on Schedule 1 and Form 1040, the EITC is greatly reduced vs. when not reporting it.  Just want to be on the right side of the IRC here.      

[MonikaK1 · Accepted solution]

If the IHSS payments you received qualified as "difficulty of care" payments as explained in IRS Notice 2014-7, they may be excluded from income. If you didn't receive a Form w-2 or 1099, and you have confirmed the payments meet the criteria for exclusion, then you don't have to enter them on your return.

You may choose to include all (or none), but not part, of these payments in earned income for determining the EIC or the ACTC, if these payments are otherwise earned income (wages or income from self-employment).

See here for questions and answers from the IRS on this topic.

[Rumpelstilschen]

@MonikaK1  - Thank you for your thorough response!

Yes, these payments meet the criteria of IRS Notice 2014-7.  It's just that the words "You may choose to include...." when it is in the filers financial favor to do so seem out of character when talking about IRS regulations :-).

[dmoses2]

So, if my client does not have a W-2, but does want to include income for EIC purposes, what would the pathway be then? So far, for 2021, everytime I put in the income sans W-2 through the Miscellaneous Income screens, it doesn't recognize the EIC credit.  Hmmmmmm.......

[Rumpelstilschen]

Hi,

Is your question specific to Medicare Waiver / Difficulty of Care payments?  If so, this is what I did (we meet the requirements of Difficulty of Care payments and do not receive a W-2).

Go to the ‘Your 2022 Income Summary / Less Common Income / Miscellaneous Income, 1099-A, 1099-C’ page and click ‘Start’.  On the next page, select the first link ‘Other income not already reported on a Form W-2 or Form 1099’ and answer the questions [Yes / Continue / Continue].  On the following page, your client can enter whether he/she wants that non W-2 income to count as earned income to trigger the EIC.  From what the TT tax expert told me, it must either be 0% or 100% of the income in question, not something in-between.

I have done it both ways and it changes the amount of the EIC.  If I put in $0, I get the full EIC amount.  If I put in the full non W-2 amount, the EIC goes to $0.  This has to do with the EIC income limits for your client’s filing status.

Hope this helps.  

[KrisD15]

@CatinaT1 Updated the directions to include that non-taxable income if it increases your Earned Income Credit. 

Remember, you claim ALL or none, nothing in-between.

Follow these instructions to enter it:   

1. Click on Wages and Income at the top of the screen  
2. Scroll down to "Less Common Income";    
3. click on Show More;   
4. click on Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C;   
5. click on Start or Revisit next to Other income not already reported on a Form W-2 or Form 1099;   
6. Did you receive other wages? Say yes;   
7. Wages earned as a household employee, leave blank and click continue;   
8. Sick or disability pay, leave blank and click continue;    
9. The next question asks about non-taxable Medicaid waiver payments. Enter the amount here,   
10. Click Continue.    

Link

@Rumpelstilschen 

@dmoses2 

[dmoses2]

Thank you for taking the time to respond. It does appear that the instructions are different for year 2021 vs 2022. For 2021, I was able to use these instructions to allow the EIC to be recognized while 'backing' out the income otherwise.

https://ttlc.intuit.com/community/after-you-file/discussion/how-and-where-to-post-claim-irs-notice-2.... 

1. Log into TurboTax and click on any topic to continue
2. Click on Federal from the menu on the left-hand side and then click on Wages & Income at the top
3. Click Edit/Add next to Job (W-2) and then click on Add a W-2
4. If you received a W-2 for your Medicaid Waiver Payments, enter the information as reported on your W-2. Enter the amount you received for Medicaid Waiver Payments in Box 1 (even if this amount is not reported in box 1 of your W-2.) If you did not receive a W-2, per IRS Form 1040 Instructions, you may still enter the amount of Medicaid Waiver Payments in Box 1 for the purpose of claiming the credit.
5. Continue through the screens until you get back to "Wages and Income" section and then scroll down to Less Common Income and click on Show More
6. Click on Start or Revisit next to Miscellaneous Income and then click on Start next to Other Reportable Income and select "Yes"
7. In the "Description" section, enter "IRS Notice 2014-7 excludable income" and in the "Amount" section, enter the W-2 box 1 amount (or amount of Medicaid Waiver Payments) as a negative (-) number

I may have read Step 4 a few times! 

Have a great rest of your tax season.