Do I pay taxes on money earned for being a caregiver to my son? I'm in AZ, employed through a 3rd party vendor for the Department of Disabilities.

[argieus]

I am technically employed by this 3rd party vendor. This 3rd party vendor pays me for the hours I work with my son in our home. It can be helping him learn to get dressed properly, self care, how to pack his lunch, stuff like that. I believe its referred to as rehabilitation.

[Critter-3]

Do they issue you a W-2 or a 1099 ?    Or are you exempt from paying taxes because this is a medicade program? 

[argieus]

I currently have a W2 with them, but can change it to a 1099 if I want. Its through the state of Arizona and it falls under Arizona Long Term Care System ALTCS. Not sure if this is Medicade. I’m trying to find out if I am excempt.

[Critter-3]

You are an employee getting a W-2 so you pay FICA taxes on your earnings.  Switching to a 1099 will not change this.   Contact ALTCS if you have more questions that were not already answered by the employer.    https://www.altcs.com/

[Hal_Al]

The income is exempt from income tax, but not FICA (social security and medicare) tax.

  A recent court case now makes Medicare waiver payments eligible for EIC, even though they are not taxable*.

It's a little tricky entering in TurboTax.  If you got a W-2 for the IHSS, enter it at the W-2 screen.

Then to back out the non-taxable part by making a separate negative entry as follows:

In TurboTax (TT), enter at:
- Federal Taxes tab (Personal in  Home & Business)

 - Wages & Income

Scroll down to:

-Less Common Income

      -Misc Income, 1099-A, 1099-C

       - On the next screen, choose – Other reportable income 

       - On the next screen, click yes

       - On the next screen, you'll get blanks to enter the amount and a description.   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 8z of Schedule 1, making the income not taxed, but still eligible for EIC.

One requirement, for the income exclusion, is that it must be paid through a "Medicaid Waiver Program".   Another requirement is that you live with the care recipient .

*The Instructions to Form 1040 now state that you report it as taxable income on Line 1, then 'back it out'  on line 8z of Schedule 1.  That way, that income will qualify for the Earned Income Credit. 

[SweetieJean]

can change it to a 1099 if I want.

Actually, you can't.  The IRS (and State Labor Depts) has (have) rules as to who gets a W-2 and who can get a 1099. 

[rgutho]

I live in Colorado and do NOT receive a W2 or any other paperwork from the 3rd party residential facility. They pay me monthly for the care of my adult son with disabilities. I also charge him for rent from his social security payments, do I need to claim that money as well? It all goes to his care in the end.

[Hal_Al]

@rgutho 

Since there's no tax forms (W-2 or 1099) for the 3rd party vendor payments, it is not reportable income.

The money your son pays you is not rental income. It is only his contribution to household expenses and is not reportable as income. 

[Cassy3578]

Did you ever figure this out?? I’m a 1099 and trying to figure it out it’s charging self employment taxes but I thought it was not taxable

[CatinaT1]

Are you talking about IHHS payments?

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.     

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.    

[Cassy3578]

yes i am referring too In home habilitation services given by DDD ALTC program in Arizona. 

wow thnank you for this reply i almost filed this under income 1099 nec