How do I count the Difficulty of Care payments if my clients only lived with me half the year?

[spayceladye]

The difficulty of care payments are excluded from taxing, but is that only if my clients lived with me all year? My clients and I began living together in June of 2018, so it was over half the year. I can claim them as dependents because I paid for more than half their living expenses. But, how do I claim the payments I received for in-home care support? Do I report half in the W2 section and half in the "less common" section? Or, since it was over half the year, do all the payments qualify for exclusion?

Thanks!

[CherylW]

It sounds like it could all go in the Less Common section.  See this article from Certain Medicare Payments May Be Excludable From Income from IRS for the reasoning:

Q2.  I moved into my elderly mother’s home to care for her, and I do not have a separate home where I reside. I receive payments under a state Medicaid Home and Community-Based Services waiver program for personal care and supportive home care. Am I considered to be providing care in “the provider’s home” for purposes of Notice 2014-7?

A2. Yes. Under § 131, “the provider’s home” means the place where the provider resides and regularly performs the routines of the provider’s private life, such as shared meals and holidays with family. See Stromme v. Commissioner, 138 T.C. 213 (2012). In this situation, the mother’s home became the provider’s home because it is where the provider resides and regularly performs the routines of the provider’s private life.

See this for how to report

Certain Medicaid waiver payments are treated as difficulty-of-care payments when received by an individual care provider for care of an eligible individual (whether related or unrelated) living in their home.

Medicaid Waiver Payments for In-Home support services are excludable from gross income and should not be included in your earned income.

If these payments are paid to you in box 1 of Form W-2 (they should not), first try to get a corrected Form W-2 from the payer. If you cannot get a corrected Form W-2, follow one of these two steps:

• Exclude these payments from your return:
  Do not include this W-2 in your return. The IRS may contact you to explain why the payments were not included on your tax return.
  You can explain that the payments are excludable from gross income under Notice 2014-7 as payments for In-Home support services.
• Do not enter the W2 in the Wages & Salaries topic.
  Instead, to enter these payments:
  1. In the Income & Expenses  (Wages & Income on the app) section, go to the Less Common Income section and select Start next to Miscellaneous Income, 1099-A, 1099-C.
  2. On the next screen, select Start next to Other Reportable Income and answer Yes on the next screen.
     
  3. You will now make two entries on the Other Taxable Income screen:
     1.  Your first entry description would be W-2 EIN # (enter EIN number from W-2) Box 1 Medicaid Waiver Payments, and enter the Box 1 amount as a positive number.
     2. Next select "Add Another Miscellaneous Income Item," and enter this description: IRS Notice 2014-7 excludable income and enter the W-2 Box 1 amount as a Negative (-) number. This both shows and explains removing the W-2 income, placing a zero on Line 21 of your Form 1040.

If your W-2 has federal or state taxes withheld, you can enter these amounts as follows:

1. In the Deductions & Credits section, go to the Estimates and Other Taxes Paid section.
2. Select Start next to Other Income Taxes, and answer Yes on the next screen if necessary.
3. On the Other income taxes screen, go to the Other Income Taxes Paid in 2017 section.
4. Select Start next to Withholding not already entered on a W-2 or 1099, and enter the amount on the next screen.

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

[spayceladye]

I've read all of that, but do I include ALL of the payments or just the ones from the time I moved in? If it's the latter, how do I calculate that from my W2s?

[CherylW]

do you have an amount in box 1 SHOWN ON your W-2?

[spayceladye]

Yes

[CherylW]

Follow the directions from 

• Exclude these payments from your return: 

Don't recalculate anything, just enter the amount in box 1 as a positive and negative, then put the explanations in.