My husband is my caregiver and gets paid to take care of me through a state program. We were told that we do not have to pay taxes on his income earned taking care of me. I’m wondering if we shou

Entering it using my instructions will show up as regular or other income.

Per IRS Family Caregivers : family caregivers must report the full amount of the payment on line 21, Other Income, of Form 1040.

To enter your 1099-Misc form from Non-employee compensation on the 1099-MISC Summary screen.

1. Sign in to TurboTax and select Take me to my return.
2. Search for 1099-misc.
3. Select the Jump to 1099-misc link in the search results.
4. Select Yes to Did you get a 1099-MISC?
5. If you need to enter another 1099-MISC, select Add Another 1099-MISC to enter a new one.
6. Enter the information from your 1099-MISC.
7. If your form has an amount in more than one box, you’ll need to enter them as separate 1099-MISC forms. We’ll help you with that.
8. On the Describe the reason for this 1099-MISC screen, enter a reason then Continue.
9. On the Does one of these uncommon situations apply? screen, select None of these apply then Continue.
10. On the Did the XXX involve work that’s like your main job? screen, select No, it didn’t involve work like my main job then Continue.
11. On the How often did you get income from XXX? screen, select I got it in 2018 then Continue.
12. On the Did the XXX involve an intent to earn money? screen, select No, it didn’t involve an intent to earn money then Continue.

You can view your 1040 form before you e-file:

1. Sign in to your account and select Take me to my return if you're not already in your return.
2. Select Tax Tools in the left menu (if you don't see this, select the menu icon in the upper-left corner).
3. View your 1040 form by selecting Tools. Next, select View Tax Summary in the pop-up, then Preview my 1040 in the left menu.
4. Scroll down to line 21 to see your Non-employee compensation from 1099-Misc
5. To get back to your income tax return, select Back in the left menu. 

Hi, I have the similar situation here, last year, I was able to follow the advice to file the tax return without paying the self-employment tax.

However, this year, what I received is 1099-NEC instead of 1099-Misc. 

I am using turbo tax again, but I don't have the same choice as in 1099-Misc.  How should I do it this year so I don't need to pay for the self-employment tax .

Enter your caregiver income using the following steps (do not enter the Form 1099-NEC).

1. Open your TurboTax return > Under Wages and Income scroll to Miscellaneous Income
2. Select Other income not already reported on a Form W-2 or Form 1099 > Start or Revisit
3. Select Yes under Did you receive any other wages > Continue
4. Continue to screen Enter Source of Other Earned Income > Select Select Employee Compensation that was not reported on a W2 
5. This walks you through the Form 8919 - enter the required information as you continue 
6. Select Should have been reported on a W-2 for the dropdown

This will eliminate adding self-employment tax which does not apply.  Keep the 1099-NEC with your tax documents.  (See clarified in later post.)

Follow these steps to remove the income from your tax return.

1. Scroll down the page to the last section titled: Less common Income and click show more;
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 and select start or edit;
4. When it asks, "Any other reportable income?" say yes then you will make one entry
5. Enter this description: IRS Notice 2014-7 excludable income and enter the W-2 Box 1 amount as a Negative (-) number

When you return to the Wages & Income page, scroll to see the negative income beside Miscellaneous Income, 1099-A, 1099-C; This will remove the income on your return for the IHSS or other payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver program.

​​​​​​​[Edit 02/07/2021 | 5:40 AM PST]

Thanks for the answer and help.

I want to make sure that I don't make mistake in filing the tax return.

The 1099-NEC is from the home service company through the state program for caring for my eldly father. So is this income exempt from tax, or just exempt from self employment tax.

1)Based on my underdstanding, it seems I need to pay the income tax but exempt from self employment tax, if so, how should I proceed?

2)Based on your suggestion, it seems I don't need to pay for the income tax for this income from 1099-NEC by putting the negative number of income to cancel out the Other income I input?

Thanks for your help.

No, you do not have to pay income tax or self-employment tax. If this is paid under the state program it should fall under the IRS Notice 2014-7.  This means that the income is not subject to tax and is allowed to be subtracted out using the steps I provided.  

Excerpt from the notice: 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, described in this notice, are difficulty of care payments excludable under § 131 of the Internal Revenue Code.

The IRS must want to track these payments since the payer is required to issue the tax documents, but this is not a new tax treatment of these earnings. Use the following ink for more information: Certain Medicaid Waiver Payments May be Excludable from Income

One requirement, for the income exclusion, is that it must be paid through a "Medicaid Waiver Program".   Another requirement is that you live with the care recipient .

A W-2 is usually issued for these type of payments. Sometimes a 1099-Misc.  The 1099-NEC is new this year, so  the home service company  may or may not be right to issue it.  You may want to ask them if the program you are in qualifies for notice 2014-7.

A new development is that even if it is not taxable, the income may qualify for the Earned Income Credit. See https://ttlc.intuit.com/community/tax-credits-deductions/discussion/re-do-i-qualify-for-eic-if-i-had-tax-exempt-income-per-irs-notice-2014-7-this-income-is-earned-from/01/1558654#M152028

Thanks for the reply.

We do live together. I need to find out if it is paid through a medicaid waiver program, as far as I know, they go through all the process to qualify my father to receive the benefit from medicaid service. What place I should go ask, and what specific question I should ask?

One more question, will the 1099-NEC is good enough for claim the income exclusion, or I need to ask the home care service for W-2? I think asking for a w-2 will be hard to do.

Thanks for all of your helping.

You can contact whoever issued the 1099-NEC to you - the payer info should be up in the left corner.   It is doubtful they will issue a W-2, but if you confirm the payment is eligible for the special treatment, that can be done with the 1099-NEC.  There are instructions above to report and exclude the income from all taxes.   

As stated above though, if the income qualifies you for a higher Earned Income credit, you can choose to include the income for the purposes of claiming the credit.  @davidruan7

If this income had been reported on a W-2, wouldn't FICA tax have been withheld? I think it is subject to FICA, even if it can be excluded for income tax.

In @DianeW777  description of how to enter, you encounter a screen "Enter Source of Other Earned Income".

Your choices are "Employee Compensation that was not reported on a W-2" or "Other".  If you choose  "Employee Compensation that was not reported on a W-2", form 8919 will be generated to calculate FICA tax. If you choose "Other" the income will go on line 1 of form 1040 as earned income, but no FICA will be charged.

Thanks for the help on how to file this income to exclude it as taxable income.

I want to ask if  I can just file the 1099-NEC as it is received in turbotax, and then in the bussiness expense section(I assume that will create a schedule C), write the same amount as expense and add that as: Qualified Medicaid waiver payments exclusion (Notice 2014-7).

Will this be also a way to do it, if so, compare to the way you suggested, which one is better, and any reason for that?

Really appreciate your help.

@DianeW777 

Hi, @DianeW777 

one more problem,  I just tried to use your way to report the income from 1099-NEC as the miscellaneous income, however, it shows it can not be more than $2200. So it seems it won't work this way.

Any other suggestion?

Thanks.

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@Hal_Al wrote:

If this income had been reported on a W-2, wouldn't FICA tax have been withheld? I think it is subject to FICA, even if it can be excluded for income tax.

---

Not in all situations.  If the recipient is considered the employer, the employee is a Household Employee.  As such, FICA does not apply to spouses, certain children or parents, or people paid less than the $2200-ish (or whatever the amount is now).

See Question #12, and the referenced other questions:

https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income

Yes the method below should be used. No.  Schedule C is not the appropriate place to enter this income. 

Follow the steps below to enter the income which as a change.  I agree with @Hal_Al, it is subject to FICA (social security and Medicare taxes). 

1. Open your TurboTax return > Under Wages and Income scroll to Miscellaneous Income
2. Select Other income not already reported on a Form W-2 or Form 1099 > Start or Revisit
3. Select Yes under Did you receive any other wages > Continue
4. Continue to screen Enter Source of Other Earned Income > Select Employee Compensation that was not reported on a W2
5. This walks you through the Form 8919 - enter the required information as you continue
6. Select Should have been reported on a W-2 for the dropdown

Because the IRS ruled that this income does qualify for earned income tax credit (EITC) purposes means the employee portion of social security and Medicare taxes must be paid. 

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@DianeW777 wrote:

Yes the method below should be used. No.  Schedule C is not the appropriate place to enter this income. 

---

What is the basis of that conclusion?  A person can certainly be paid as an Independent Contractor under a Medicaid Waiver, if the circumstance show that the person is a Contractor.

---

@DianeW777 wrote:

Because the IRS ruled that this income does qualify for earned income tax credit (EITC) purposes means the employee portion of social security and Medicare taxes must be paid. 

---

What makes you say that Social Security and Medicare need to be paid to qualify for the EIC?  As far as I know, there is nothing to support that statement.  And it was a COURT that ruled that the income qualifies for EIC, not the IRS (although the IRS says you have the OPTION to claim it for EIC purposes or not).

@DawnC @DianeW777 

Here is what I got from another group, can you take a look and let me know if that is correct way to do it, if not, would you mind to tell me what is wrong with that, really appreciate for your help.

Obviously, what they are talking about is 2016 tax filing.

Based on the IRS FAQs Medicare Waiver Payments  about Independent Contractors receiving Form 1099-NEC (formerly 1099-MISC),  as discussed in questions 19 and 20, it seems you could be considered an independent contractor.  In this case if you add the income on Schedule C and then subtract it out as a miscellaneous expense, the EITC does not come into play on your tax return so it would not be a consideration.

Lastly, Form SS-8, used by the IRS,  helps determine the difference between independent contractor and employee.  Since this is a state funded program, it would seem they would be following the IRS guidelines to report the income to the caregivers based on facts and circumstances in each case.

All that being said, you can report the amount on Schedule C and this would eliminate Form 8919 and employee portion of FICA taxes.

Hi, @DianeW777,

Thanks so much for your help, after reading the IRS doc(Certain Medicaid Waiver Payments May Be Excludable From Income | Internal Revenue Service (irs.gov)), I think this Q13 describe the exact situation as my 1099-NEC, since I don't run any business as stated in Q14. 

So my silly question is: how do I input this  “Notice 2014-7” in turboTax, and did that mean I don't report the number in my 1099-NEC in turboTax at all.

Or, I can treat myself as a sole proprietor in a business of providing home care services, even though I don't actually own a business, and follow the answer in Q14 to cancel out the 1099-NEC income as business expense?

Thanks a lot!

Q13. I provide services under a state Medicaid Home and Community-Based Services waiver program. The agency that pays me for these services does not treat me as an employee, and I do not have a separate trade or business of providing these services. However, the agency reported the payments as income on Form 1099-MISC, Miscellaneous Income. How should I report to the Service that these payments are excludable from gross income?

A13. You should enter -0- on line 21 of Form 1040 if you have no other income reportable on line 21. If you have other income reportable on line 21, you should enter the amount of the other reportable income on line 21. You should write “Notice 2014-7” on the dotted line for line 21 on a paper return or enter “Notice 2014-7” on line 21 for an electronically filed return. Because the payments are excludable from income, and because you do not have a trade or business of providing these services, the payments are not self-employment income subject to self-employment tax.

Q14. I am a sole proprietor in a business of providing home care services. In my business, I received payments that areexcludable from gross income under Notice 2014-7. However, I received a Form 1099-MISC, Miscellaneous Income, reporting these payments as income. How should I report to the Service that these payments are excludable from gross income?

A14. You should include the full amount of the payments reported to you on Form 1099-MISC as income on line 1 of Form 1040 (Schedule C). You should then report the excludable amount as an expense in Part V, and write “Notice 2014-7” next to that amount. Even though you are a sole proprietor, because the amounts are excludable from income, they are not self-employment income and are not subject to self-employment tax. For additional Q&As discussing the application of self-employment tax to family caregivers, follow this link:  /Businesses/Small-Businesses-&-Self-Employed/Family-Caregivers-and-Self-Employment-Tax. 

This is done in 2 parts 

Part 1: Enter your caregiver income using the following steps (do not enter the Form 1099-NEC).

1. Open your TurboTax return > Under Wages and Income scroll to Miscellaneous Income
2. Select Other income not already reported on a Form W-2 or Form 1099 > Start or Revisit
3. Select Yes under Did you receive any other wages > Continue
4. Continue to screen Certain nontaxable Medicaid waiver payments not reported on Form W-2 or 1099 >Enter the amounts you received in Medicaid waiver payments field as a positive number.
5. This would take into account the income for reporting purpose. 

This will eliminate adding self-employment tax which does not apply.  Keep the 1099-NEC with your tax documents. 

Part 2: Follow these steps to remove the income from your tax return.

1. Scroll down the page to the last section titled: Less common Income and click show more;
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 and select start or edit;
4. When it asks, "Any other reportable income?" say yes then you will make one entry
5. Enter this description: IRS Notice 2014-7 excludable income and enter the W-2 Box 1 amount as a Negative (-) number

When you return to the Wages & Income page, scroll to see the negative income beside Miscellaneous Income, 1099-A, 1099-C; This will remove the income on your return for the IHSS or other payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver program.

Thus by doing part 1, your  AGI still continue to report your income to IRS and part 2 eliminates the income you received thus your taxable income does not increase because of this receipt.