The help article for this issue was recently updated. We are finding this year that different counties / payers are identifying the IHSS / difficulty of care income differently.
Many Forms W-2 issued for IHSS - IRS Notice 2014-7 income now show zero in Box 1, to indicate that it isn't subject to Federal income tax, but show the entire amount of wages paid in Box 3, Social Security wages. If you have an amount in Box 3, and you might qualify for Earned Income Credit or Additional Child Tax Credit, follow the instructions in this help article, which were recently updated:
- Sign in to TurboTax and open your return.
- Select Search, enter w-2, and select Jump to w-2.
- Enter all your W-2 info as shown on your form, except Box 1 (this is assuming that the W-2 Box 1 is blank or zero).
- Enter the amount reported in box 3 of your W-2 in Box 1. (This assumes there is a number in Box 3)
- On the Let’s check for uncommon situations screen, select the box next to Nontaxable Medicaid waiver payments that qualify as difficulty of care payments.
- Enter the amount of Medicaid waiver payments into the difficulty of care payment you received from IHHS box.
- This is the same amount reported in boxes 3 and 5 of your W-2.
- Your payments are nontaxable, but TurboTax uses this number to calculate credits you may qualify for.
- When you get to the Earned Income Credit section in Deductions and Credits, we’ll ask if you want to add your Medicaid waiver payment to your income for this credit. You can answer based on what benefits you most.
If you follow these steps, you are entering income and then backing out the income, so that it isn't backed out twice, and so that you are not entering a zero in Box 1 which may prevent e-filing.
If you don't have any dollar amounts on your W-2, you qualify to exclude the income under IRS Notice 2014-7, and you don't expect to qualify for Earned Income Credit or Additional Child Tax Credit, then you don't need to enter the W-2 at all.
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