Regarding Medicaid Waiver Payment 2014-7 and Earned Income

[cherris]

 I understand that you enter the income as a positive and then a negative under Misc/Other Income Not Reported.  But when I do that and don't enter the income on line 1, how do I claim the credit?  Because with no income on line 1 Turbo Tax does not calculate the EIC.  

Also, if I am on SSA disability and I receive Medicaid Waiver Payments for caring for my grandson, can that income be used to calculate an SSA overpayment?

[BarbaraW22]

Even though Medicaid Waiver Payments are not taxable for federal income tax purposes, the payments can be used to calculate the earned income tax credit. In a recent court case, it was ruled that Medicaid Waiver Payments are considered "earned income" for purposes of calculating the earned income tax credit. A taxpayer can choose to include Medicaid Waiver Payments as Wages on line 1 of Form 1040 (even if not reported on a W-2) in order to claim the credit. Then an adjustment is entered on Schedule 1, line 8 so the payments are not included in taxable income. Please follow the steps below to enter Medicaid Waiver Payments:

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 the "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.

NOTE: This will both show the W-2 on your return and explain why it is not taxable.

Your Social Security Disability Insurance payments are not considered "earned income" and cannot be used to claim the Earned Income Tax Credit. Please see this link to "Disability and Earned Income Tax Credit" for more information.

Your Social Security Disability Insurance payments may be taxable if your other income (including tax-exempt interest) plus half of your social security benefits exceed $25,000 for single filers or $32,000 for married filing jointly. However, your Medicaid Waiver Payments would not be considered as other income for this calculation.

@cherris 

[Edited 02/11/20 | 5:06pm PST]

[Hal_Al]

A recent court case now makes maedicare waiver payments eligible for EIC, even though they are not taxable (https://www.ustaxcourt.gov/UstcInOp/OpinionViewer.aspx?ID=11863).

Do not eter the income as Misc/Other Income, as previously advised. Instead enter your W-2 as a regualar W-2. 

Then make a separate negative entry as follows:

1. In Income go to the Less Common Income section and select Start next toMiscellaneous Income, 1099-A, 1099-C.
2. On the next screen, select Start next to Other Reportable Income and answer Yes on the next screen.  Enter the description IRS Notice 2014-7 excludable income and enter the W-2 box 1 amount as a negative (-) number. This places an offset on line 8 of Schedule 1, making the income not taxed, but still eligible for EIC.

A requirement, for the income exclusion,  is that you live with the care recipient .

____________________________________________________________________________

Q.  Can that income be used to calculate an SSDI overpayment?

A. I would think not, since it is not taxable.  But I don't know that for a fact. You may have to address that question to SSA.

[5kids20yrs]

But when I enter the income per the instructions (enter info into W2, then under misc income as a negative number), Turbo tax will not let me e-file with a negative number on line 8.  Even though the total income number is not negative.  Help!!!  

[BarbaraW22]

If you are not able to e-file your tax return, please consider the following suggestions:

• Review your return again. There may be an error or missing information that is preventing you from e-filing.
  • Click on "Review" from the menu on the left-hand side of the screen and answer the questions.
• There may be a form in your tax return that cannot be e-filed. Please review your return and then click on this TurboTax article to see if all the forms in your return can be e-filed.
• If you are still unable to e-file, you can print and mail your return by clicking on Tax Tools from the menu on the left-hand side of the screen and then Print Center. Please see the instruction page that prints out for the correct address to mail your return.

If you have no taxable income, you will not be able to e-file your tax return. 

For more information, please see this TurboTax Help Article.

​​​​​​​@5kids20yrs

[Yatziryp91]

Hi Barbara,

I am still a bit confused. I am an IHSS provider for my brother whom lives with me so I got a W2 but BOX 1 is $0. I have numbers on boxes 3,4,5,6. I want to be able to use this W2 as earned income for the credit.

[Hal_Al]

@Yatziryp91  When you enter the W-2 in TurboTax, also enter the amount in box 5 in box 1. 

Then make a separate negative entry as follows:

1. In Income go to the Less Common Income section and select Start next toMiscellaneous Income, 1099-A, 1099-C.
2. On the next screen, select Start next to Other Reportable Income and answer Yes on the next screen.  Enter the description IRS Notice 2014-7 excludable income and enter the amount you entered in  box 1 amount as a negative (-) number. This places an offset on line 8 of Schedule 1, making the income not taxed, but still eligible for EIC.

[AmeliesUncle]

There should be a better way to do that.  It shouldn't be counted as "earned income" for other purposes.

[LisaEight]

This worked for me last year but this year (TT 2021) does not have this option under Miscellaneous Income.

I followed advice on IRS website here (Answer 11) (same as @Hal_Al says for last year) and put it on blank line 8 for other by using the 1040/1040SR WORKSHEET; this is the only place Schedule 1 is fillable and it populates through other forms from there. I could not insert in the step by step miscellaneous income section. Maybe just me but the "other reportable income" prompt was specific to other situations but not this one this year, did not let me enter.

So, using forms in Turbo Tax 2021 (not step-by-step):

W-2 says $0 in Box 1; I changed it on W-2 form to Box 5 amount.

I then went to 1040/1040 SR worksheet and scrolled down to Schedule 1 blank lines on line 8.

Entered IRS Notice 2014-7 and then put the amount I'd entered in Box 1 above as a negative number. 

This calculated the Earned Income Tax Credit and populated the filing forms correctly. 

[Hal_Al]

@LisaEight  I just tried it (Desktop Deluxe). I works the same as last year.

It sounds like you're in the wrong place, in the step by step.   You should be at:

1. In Income go to the Less Common Income section and select Start next toMiscellaneous Income, 1099-A, 1099-C.
2. On the next screen, select Start next to Other Reportable Income and answer Yes on the next screen.  

Instead, it sounds like you're at:

1. In Income go to the Less Common Income section and select Start next toMiscellaneous Income, 1099-A, 1099-C.
2. On the next screen, Other income not already reported on a W-2 or 1099 

[LisaEight]

Thank you @Hal_Al 

I already filed but will try this next year. 

Each time I need to come back to this forum 😉