IHSS income as a live-in provider

[milladot]

So, as the title states I'm a live-in provider which is exempt from federal taxes.  My W2 has 0.00 in box 1 and 2, but my wages and deductions for SS/Medi-care are populated in the remaining boxes.  Since there's a 0 value in box 1 I can't e-file. 

I've read the explanation to fill in box 1 with the wages and then subtract them using misc income, but when I do that my refund is reduced by nearly $2k. I'm not entirely sure why.  So, is there anything wrong with filing as the W2 is given, with 0.00 in box 1 and 2, and just mail the returns rather than e-file, for the larger return? 

[ColeenD3]

The proper way is to add it in and subtract it. Take a look at the form before and after to see exactly what the changes are. There is something being affected by the change in income, but unless you see it exactly, there is no way to tell what it is.

[milladot]

So, what I'm noticing right away between the two is that when I enter the W2 as it's given I'm being taxed at -2.42%, which seems really weird.  And the one where I enter a value and subtract, I'm being taxed 2.57%.  This seems buggy.  If I leave out the IHSS W2 altogether and just leave the info from another W2 I have the tax rate is back to -2.42%.  So that particular W2 isn't actually the fault.  It seems the negative tax rate is what Turbotax is coming up with to begin with regardless of whether or not I add in that W2. 

Considering I owe nothing on that IHSS W2, as it's not federally taxed, wouldn't it be best to leave out altogether? 

[DianeW777]

Let's try these steps because it could be affecting your earned income credit if that applies to you.  @BarbaraW22 provides very thorough details and they have are shown below for your convenience.

Since you received a W-2, you should enter the information in TurboTax and then show an offset for this entry so that you will not be taxed on the payments. This will reconcile your tax return with what the IRS has received and then show the corresponding offset to explain why it is not taxable. You will also be able to recover the federal and state taxes that were withheld from your payments. Please see the steps listed below to enter your W-2 into TurboTax.

It is also important to inform you that a recent court case, ruled that IHSS payments and Medicaid Waiver Payments are considered "earned income" for purposes of calculating the earned income tax credit and other credits. Even though the income is not taxable for income tax purposes, a taxpayer can choose to show the payments as earned income in order to claim a credit. Please see IRS Form 1040 Instructions (page 22) for more information.

The instructions below include steps to enter the payments as earned income to receive a credit or to report them as unearned income. Either way the payments will not be subject to federal or California state income taxes.

1. Log into TurboTax and click on any topic to continue
2. Click on Federal from the menu on the left-hand side and then click on Wages & Income at the top
3. If you choose to report your payments to receive a credit: Click Edit/Add next to Job (W-2) and then click on Add a W-2.
4. Enter the information as reported on your W-2. Enter the amount you received for IHSS Payments in Box 1 (even if this amount is not reported in box 1 of your W-2.)
5. If you choose not to report it as earned income to receive a credit: Scroll down to "Less Common Income" and click on Show More.
6. Click on Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C. Then click on Start or Revisit next to Other reportable income and select Yes
7. Enter "In-Home Support Services Payments, EIN # (enter EIN number from W-2)" in the description box and then enter the amount from your W-2. Click Continue.
8. To enter the offset for the payments (whether you chose to report as earned income or not): Click on Wages and Income at the top of the screen. Scroll down to "Less Common Income" and click on Show More. 
9. Click on Start or Revisit next to Miscellaneous Income and then click on Start or Revisit next to Other Reportable Income and select "Yes" or "Add Another Income Item" if applicable
10. In the "Description" section, enter "IRS Notice 2014-7 excludable income" and in the "Amount" section, enter the W-2 box 1 amount (or amount of IHSS Payments) as a negative (-) number.

[milladot]

These are actually the exact steps I followed.  What's happening is that my tax rate is a negative value, -2.42%, and when I enter the negative (-) number in the Other Reportable Income section Turbotax is multiplying a negative number with a negative number (tax rate), and spitting out a positive value, which decreases my refund by a substantial amount. 

I'm not sure why my initial tax rate is negative, but it is negative without adding the IHSS W2 at all.

In this case, what should I do?

[ColeenD3]

If you wish, you can send me a diagnostic copy of your return. All your personal information will be scrubbed.

Use these steps if you are using TurboTax Online:

• Sign in to your account and be sure you are in your tax return.
• Select Tax Tools in the menu to the left.
• Select Tools.
• Select Share my file with agent.
• A pop-up message will appear, select OK to send the sanitized diagnostic copy to us.
• Post the token number here. 

If you are using a CD/downloaded version of TurboTax, use these steps:

• Select Online at the top of the screen
• Select Send Tax File to Agent.
• Click OK.
• Post the token number here.

[milladot]

Okay, sounds good.  I will send 2 copies if that's okay, one without the IHSS W2, and one with it according to the instructions posted. 

[milladot]

Okay, the token number for the first is 819416, and the one with the IHSS info added is 819422.

Thank you.

[svsmi50]

You need to have some income somewhere on the 1040 lines 1 thru 8 in order to efile so I suggest you enter the W-2 as presented with 0's in box 1 and 2 as you have done.  Enter $1 as "other income" (Schedule 1, part 1, line 😎 and label it "For efile".   This will carry to the 1040 line 8 and then to line 9.  Then you should be able to efile and be done with the return. 

[milladot]

Thing is, I'm a little hesitant to put anything down that isn't accurate/reported.  So the $1 trick seems iffy to me.  I'm not too concerned with E-filing, though it would be nice.  I just want to make sure I'm doing everything accurately and legally.  It seems weird that I have a negative tax rate in the first place, but even with that there's no reason the IHSS income should have any affect on the return amount, since it isn't taxable. 

[ColeenD3]

The difference between the two is the Earned Income Credit. The program is including the IHSS income in the calculation, although it shouldn't. You have a choice. You can include the actual zero, but you won't be able to e-file. You can also just include $1 to get the program to acknowledge income and allow the e-file.

[milladot]

Ah, okay, thank you.  So it's in fact safe for me to file without doing the subtraction method, by just leaving box 1 0.00 like it shows on my W2, and just file by mail? 

[Cynbel02]

I followed your instructions but Turbo Tax gives me a needs review in Federal tax and won't allow me to move forward. It says amount cannot be less than zero. Only option is to mail and I want to e-file. Please help! 

[svsmi50]

Leave the boxes 1 and 2 blank and then enter $1 of Other Income and then you can Efile.  You need at least $1 of  income to efile.

[ripa818]

Hello. 

I am a Live in provider and received W-2 form and have a $ amount in box 1 and I also have paid taxes which shows all kinds of taxes paid. However after reading all the comments I still cant figure out how do I make my IHSS income non taxable but still show that I paid taxes. I filled out everything as a regular job under Wages & Income  abut don't know which box do I offset the income to be nontaxable ? Thank You