I assume that IHSS means the In-Home Supportive Services program of the California Department of Social Services.
You can't just change the wages on your W-2 or on your tax return. If all of your wages are included in box 1 of your W-2, that means that the Department of Social Services does not think your wages qualify as Medicaid Waiver Payments, which would be exempt. (Medicaid Waiver Payments are also called Difficulty of Care payments.) You should first discuss with the department why they reported your wages as taxable. If they agree that it should be exempt, ask them to issue a corrected W-2. If they do not agree, but you want to treat the wages as exempt Medicaid Waiver Payments, you will have to first enter the W-2 in TurboTax as it is, then make a correcting entry to subtract the exempt wages from your income. Here's how to make the correcting entry in TurboTax.
- In the Search box in TurboTax type "executor fees" (without the quotes), then click the link that says "Jump to executor fees." I know you don't have executor fees, but it's the best search term I could find that gets you to the right place.
- The first screen asks, "Any Other Taxable Income?" Click Yes.
- On the next screen, "Other Taxable Income," for the Description enter "Notice 2014-7." For the amount enter the amount from box 1 of your W-2 that is exempt from tax as a negative number. This will probably be the full amount that is in box 1. For example, if box 1 of your W-2 is $8,000, enter -8000. Click Continue.
- On the next screen click Done.
This will create an entry on Schedule 1 line 8z of your tax return with the description and negative amount that you entered. The amount will be subtracted from the income on Form 1040.
If you do this, you might get a letter from the IRS or the FTB, or both, saying that your tax return is wrong and you owe additional tax. You might prefer to have your tax return prepared by a local tax professional who will be able to help you deal with any letters you might get.
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