Difficulty of Care & Advanced Premium Tax Credit

[LangdonAlger]

This is the first time I’ve had an issue like this, so please excuse my ignorance.

Because of my job and living arrangements, I’m eligible for Difficulty of Care (NJ) federal income tax exclusion.  However, I’m considered an independent contractor and have to purchase health insurance on my own, which I get from Get Covered NJ.  Before applying, I called and asked if I was eligible for the Advanced Premium Tax Credit even though I would only be filing a state return for 2024.  The person I spoke to said as long as I was willing to file a return, I could apply for the credits.  My question is, how do I reconcile the credit?  I’ve heard I can file a federal tax return even if I only owe state taxes, but I don’t know how to do that with no federal income to report.

[SharonD007]

What type of tax form did you receive for your Difficulty of Care payments? You can file a return even though your payments aren't taxable. To determine if you want to include this income on your tax return for your Earned Income Tax Credit, when you get to that section, you can elect to add the income or exclude it.  Try both ways to determine which way gives you the greater EIC.

Follow the steps below to enter your W-2

1. Open TurboTax
2. Select Federal Taxes
3. Select Wages & Income
4. Select Work on W-2
5. Enter your W-2, at the Let's check for uncommon situations; check the box next to Nontaxable Medicaid waiver payments
6. Continue following the prompts.

Review the TurboTax Help article How do I enter my tax-exempt Medicaid waiver payments from IHSS in TurboTax? for navigation instructions.

The 1095-A is used to complete your Premium Tax Credit Form 8962 and reconcile your Premium Tax Credit. Refer to the TurboTax Help article Where do I enter my 1095-A? for navigation instructions. If there are zeroes in any of the field, leave the spaces blank.

If you W-2 has 0 or blank in box 1, you won't be able to e-file, you must print and mail your return.

[LangdonAlger]

Hi SharonD007.  Thank you so much for your answer. The only form I received is a W2. As for Box 1, there is a number listed.  Box 2, however (Federal income tax withheld) is blank.  When it comes to that box, what would I put in?  I’m assuming it won’t let me continue if it’s blank.

[KrisD15]

You absolutely can leave Box 2 blank on the W-2 entry screen and continue.

Be sure to then select "Nontaxable Medicaid Wavier Payments" on the screen that follows. 

The payments can count for the Earned Income Credit as well (if you want to include them), the program will help you decide on this if the option is available to you.