2014-7 Difficulty of care act

[cottagecharm11]

I am exempt from taxes on my W-2 income taxes due to the "Difficulty of Care Exemption". In the past using Turbo Tax if any are taxes are withheld in error by payroll they are refunded when I fill out my taxes on Schedule 1. Last year when I got a check, for over $600 for Paid Time Off (PTO) I was issued a 1099 NEC and had to claim it as self-employment. This year the PTO was sent by the Homecare Worker's Benefit Trust on a 1099 MISC. When entering the information as a 1099 MISC I filled the "What is this income for" question as Paid Time Off. The next screen has   'Does anyone of these uncommon situations apply, at the bottom of the list is a place to check the box for "This is a Medicaid Waiver payment that qualifies as a Difficulty of Care payment".  I was told when I received my first 1099 NEC that it was taxable because I did not work for the money, and it was taxable. So I assume I still owe taxes and should check the box "None of these apply"? Is this correct?

[MonikaK1]

Yes, the amount for paid time off is taxable. Enter it in the 1099-MISC section of TurboTax and answer the questions to indicate it's not from working.

See this IRS webpage regarding Medicaid waiver payments, in the Q and A section:

Q8. I am an individual care provider, and I receive vacation pay from the state, as well as Medicaid waiver payments for the care that I provide to a disabled individual living in my home under the individual's plan of care. May I exclude the vacation pay from gross income?

A8. No. The only amounts excludable from gross income under Notice 2014-7 are payments for the care of the disabled individual.

[JoshJordan]

Hello everyone,

I am a live-in provider for a sibling family member - no one else and no other sources of income - and filed the live-in certification in 2016 where only Medicare and Social Security taxes are deducted on the federal level, and SDI deductions on the state level. No FICA or state taxes were ever deducted or withheld. Every year since 2016 my W-2 had Box 1 and Box 5 contain the same total earnings received that year. I would enter every thing normally in TurboTax and then I'd enter the same number as a negative number under Other Reportable Income under the Miscellaneous Income section. Since 2019 I've also contributed to a regular IRA (Secure Act IRC §§408(o), 415(c)(3); SECURE Act §116) and also file Form 8606 for it. I also file as single and not as Head of Household and do not file for EITC.

IHSS sent me a message in 2023 asking me to re-certify for being a live-in provider which I did. When I got my 2023 W-2 I didn't pay close attention to it and waited until early October to file, only to notice that Box 1 and Box 5 of my W-2 are different. Box 1 has the amount from the beginning of the year until the day I was asked to re-certify, and Box 5 has the total amount for the whole year ; pre and post re-certification.

My question is what number would I enter as negative in the Other Reportable Income under the Miscellaneous Income; Box 1 or Box 5? In previous years and since both were the same it didn't matter.

Also, it seems that for 2024 Box 5 will be the total amount received but Box 1 will be zero and unlike previous years. Would the same apply for the Other Reportable Income under the Miscellaneous Income section? And, would I still be able to make IRA contributions? Nothing has changed in my paystub deductions as far as Medicare and Social Security, and no FICA is being deducted.

Thank you.

[cottagecharm11]

You replied to my message and I was the person that was asking for help with my question. Since the experts probably won't be notified of your question to me, you should re-post this as a new question to them in order to get a reply from the tax experts.