I have a W2 from foster care income that needs to be non-taxable, where do I enter it? there are taxes taken out of my foster care income where is that entered?

[patrick-mclogan]

I read the booklet on foster care income. It states that it should be listed as non-taxable. The agency took tax, SSI, Medicare out of my pay. Where do I enter that information?

[KittyM]

Are these difficulty of care payments for your foster child?

[KittyM · Accepted solution]

Please refer to the instructions below for how to enter "Difficulty of Care" payments, which are exempt income under Notice 2014-7. This notice provides that certain payments received by an individual care provider under a state Medicaid waiver program, are difficulty of care payments and excludable as income. 

If these payments are paid to you in box 1 of form W-2 (they should not have been), first try to get a corrected Form W-2 from the payer. If you cannot get a corrected Form W-2, do not enter the W-2 in the Wages & Salaries topic. Instead enter it as instructed below: 

• Open your Federal return then click on the Wages & Income tab
• Scroll down to Less Common Income (you may have to click Show more income) and Show more
• Start or revist Miscellaneous Income, 1099-A, 1099-C
• Choose Other Reportable Income and select start or edit
• When you get to the screen "Any other reportable income?" say Yes. 
• Make the following two entries:

1.  Your first entry description would be "W-2 EIN # number from W-2, Box 1 Medicaid Waiver Payments," and enter the Box 1 amount as a positive number.

2.  Next you will "Add Another Miscellaneous Income Item," and enter the 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, Schedule 1. 

If your W-2 has federal or state taxes withheld, you can enter these amounts in Deductions & Credits under Other Income Taxes as Withholding not already entered on W-2.