Amend Taxes for last 3 years- Difficulty of Care Income

[hollylyn111]

I am trying to amend my , 2020, 2021, and 2022 tax returns so that I can claim the Difficulty of Care income I received while caring for someone in my home. I am not getting the option to make them tax exempt but there were taxes taken out. 

I'm using Turbotax Home & Business ... if that matters

[DoninGA]

See this TurboTax support FAQ - https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-w-2/qualified-medicaid-waiver-payme...

[hollylyn111]

I've literally read and tried this... it doesn't work. @DoninGA  I don't even get the option to list the income as exempt.

[DoninGA]

See Q10 on this IRS website - https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income

See this TurboTax post for how to enter - https://ttlc.intuit.com/community/taxes/discussion/2014-7-difficulty-of-care-act/00/1079249

[hollylyn111]

I was told, by the state I live in, that my payments are eligible. Therefore, I need to be able to amend my tax return, however, I am not receiving the proper prompts to do so.

Sending me links that I have already read and confirmed with state officials is not helpful. 

[CatinaT1]

See this TurboTax FAQ for help with amending.   

Tax-Exempt Medicaid Waiver Payments from IHHS  

TurboTax can exempt income under Notice 2014-7 per the IRS instructions for Medicaid Waiver payments from IHHS. 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 are difficulty of care payments and excludable as income. Additionally, you can choose to use this income to calculate Earned Income Credit. Regardless, the income will remain non-taxable.      

This tax-exempt income can be reported to you differently depending on the State and County you live in. You might receive a W-2, 1099, and no form at all.   

See the instructions below for how to report this depending on how the income was reported to you.  

If you received a W-2 with $0 in Box 1:  

1. Sign in to TurboTax Online, click Continue to your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Under Wages and Income, click Start;      
4. Click on Work on my W-2, and enter the information as reported on your W-2.     
5. After entering all your W-2s, you will see the screen, Let’s check for uncommon situations. Next to Nontaxable Medicaid waiver payments, check the box.  
6. You will enter the amount of Medicaid Waiver Payments into the box asking for the total amount of difficulty of care payment you received from IHHS. This will be the same amount reported in Boxes 3 and 5 of your W-2.  
7. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.    

If you received a 1099 or no form:   

1. Sign in to TurboTax Online, click Continue your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Scroll down to Less Common Income;       
4. Click on Start next to Miscellaneous Income, 1099-A, 1099-C.  
5. Click on Start next to, Other income not already reported on a Form W-2 or Form 1099;      
6. Answer Yes to Did you receive any other wages?;      
7. Leave blank the box for Wages earned as a household employee and click continue;  
8. Leave blank the box for Sick or disability pay and click continue;       
9. Enter the amount of Medicaid waiver payments on Certain nontaxable Medicaid waiver payments not reported on Form W-2, and click Continue.  
10. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

For more information, refer to IRS Notice 2014–7, 20144 I.R.B. 445 and the IRS FAQs.  

[drahcirpal]

You are giving instructions for the Federal Tax Returns (which Difficulty of Care payments are already excluded). But how do you exclude at the State level when there is an amount in box 1 on the W2?

This is what I did:

I am amending previous tax returns as well. There is income amount at the state level which is why I wound up overpaying in taxes before NJ clarified it this year. I left everything as is and went to the "Other Wage Adjustments - W-2" and entered Difficulty of Care Payments and excluded the amount that was also excluded at the Federal W2. It subtracted the amount and now I am expecting the tax I paid plus a refund. I want to make sure that I did this correctly. I appreciate it if you can confirm this.

Also, When sending my Amended forms, should I include the Federal? There are no changes on the Federal but the Federal does show the amounts that were excluded clearly. 

Also,  Should I include anything with the amended return? I'm assuming not because no changes were made to the W2, I just excluded the amount as Difficulty of Care.

- Thank-You

[DianeW777]

Yes, you are completing the amendment correctly by reducing your taxable wages. Send a copy of your Form 1040 with your state amendment which will help them to reconcile the amended tax return. The full amount of your wages from 'Difficulty of Care Payments' should be excluded for New Jersey (NJ).

@drahcirpal