IHSS Income in Federal and State Tax Return

[Coseetax22]

Hello,

I received payments from IHSS as a provider, and I live with my client. Do I have to report this income on my federal and state tax return since I received a W-2 with the income amount in box 1? How should I file this income in turbo tax? How should I handle the income tax that had been withheld through the paychecks for the reporting year?

Also, if the income from IHSS is exempt from tax. Can I file an amended return for previous years since I started my service in 2018?

Thanks

[MinhT1]

The payments you receive are Difficulty of care payments and can be excluded from taxable income according to IRS Notice 2014-7.

If you received a form W-2, then enter that form in TurboTax just like a normal W-2.

Then you will exclude the income by reversing the amount of the income reported in box 1 of form W-2 in Other Income.

To do so, open your return and follow these steps:

1. Click on Federal in the left-hand column, then on Wages and Income on top of the screen
2. Scroll down to locate the Less Common Income section
3. Click Show more and click Start next to Miscellaneous Income at the bottom
4. On the next page, click Start next to Other Reportable Income.
5. 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 Medicaid Waiver Payments) as a negative (-) number

For years 2018, 2019 and 2020, you can amend your returns to obtain a refund of taxes.

Please see this TurboTax article for instructions on how to amend your tax return in TurboTax.

[Coseetax22]

Would that matter if I just filed my Live-In Self Certification form (SOC 2298) to the county?

Thanks.

[JohnW152]

Please clarify:  Do you mean, would you not have to report the income and then exclude the income using this procedure if you filed this certification with your return?  If that’s your question, then, no – you need to report the income, then remove it.    

The IRS needs to see you reporting the income, so you need to enter the Form W-2 info.  This helps keep the IRS from thinking you haven’t reported income, so it’s unlikely that you’ll come up on an underreporter list and get a letter from them.  Then you offset the income using the procedure.

If that’s not your question, please explain further.

[Coseetax22]

Hello,

I wonder if I need to file my Live-In Self Certification form (SOC 2298) to the county before the end of 2021 in order to make exclusion of IHSS income in my 2021 return?

Thanks.

[DianeW777]

It depends on whether you have already filed a form.  

• Beginning January 2017, you have the option to self-certify your living arrangements to exclude IHSS/WPCS wages from FIT and SIT by sending the form. Your exclusion from FIT and SIT will continue each year you continue to work for, and live with, your recipient and you will not need to re-certify every year.
• Live-in Self Certification FAQs

It does not matter if you file Form SOC 2298 form or not for your return.  That is not a form for IRS purposes.  As long as you qualify for it (living with the person and being paid under a Medicaid Waiver program), you can exclude the payments from your income.

[Coseetax22]

Thank you for your assistance with this matter.

[Jess106]

What if my box 1 says 0 but 2 and 3 show my actual income? Can I add the income as miscellaneous? I am unsure how to claim it for EIC

[KrisD15]

Yes, “Difficulty of Care” income can be both- tax exempt, and also used for credits, such as the Earned Income Credit (EIC).

If you received “Difficulty of Care” payments, you have the option of reporting that income if it helps you earn a larger credit (which should increase your refund or lower your tax due). 

“Difficulty of Care” payments are “Tax Exempt” so they aren’t normally reported on a W-2 however you say you have a W-2 so use that amount. 

You must claim ALL the “Difficulty of Care” income, or none. You can’t report only a portion of what you received. 

Entering into TurboTax is a bit confusing so please follow these steps carefully. 

Sign into TurboTax and continue through until you can start selecting "Wages & Income" located at the top of the screen

Click on Wages & Income

Select answers to the questions which follow if necessary to move forward

Click Add more income 

Scroll down to the VERY LAST option "Less Common Income" and click Show more

On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click START 

On this new drop-down list scroll to the VERY FIRST option "Other income not already reported on a Form W-2 or Form 1099"

Click START

Select YES to the page titled "Other Wages Received" and Continue

Select CONTINUE on the "Wages earned as a Household Employee" screen (enter nothing here)

Select CONTINUE on the "Sick or Disability Pay" screen (enter nothing here)

Select "Yes" on the "Any Other Earned Income" screen and continue

Select "Other" on the "Enter Source of Other Earned Income" and Continue

In Description Box type "Qualified Medicaid Waiver Pay" and the amount

(NOTE- YOU MUST ENTER ALL THE INCOME OR NONE)

Click Done 

This will put the income on your 1040 line 1 where it needs to be. 

Next, you need to make an entry so that TurboTax will make the income exempt from tax. 

(NOTE- AT THIS POINT, YOU MAY NOT OWE ANY TAX ON THE INCOME AND YOU MAY ALREADY HAVE THE EIC CREDIT INCLUDED IN YOUR REFUND, THEREFORE THE NEXT STEPS MAY OR MAY NOT CHANGE THE FEDERAL REFUND METER ON TOP OF THE TURBOTAX SCREEN) 

(you will be repeating some steps, but not all)

Go back to the Wages & Income section

Scroll down to the VERY LAST option "Less Common Income" and click Show more

On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click REVISIT

Now scroll down to the VERY LAST option "Other reportable income" and click Start

Select YES on the "Any Other Taxable Income?" screen 

Type "Tax Exempt Income on line 1" and the same amount you entered before but as a NEGATIVE (put a minus sign - in front of the number) 

This NEGATIVE number should show on your 1040 line 8 

TO CHECK IN TURBOTAX ONLINE:

Click "Tax Tools" on the LEFT SIDE BAR then click "Tools" that open below 

Click "View Tax Summary" on the screen

Click "Preview my 1040" which now appears on the LEFT SIDE BAR

Scroll through the 1040. 

The amount of income should be on line 1

The adjustment (negative) should be on line 8

[g1steli]

I have a couple of questions about the IHSS income.  I received a W2 for the IHSS income.  I've entered this W2 as a regular W2, and towards the ends, there is a section for checking uncommon situations.

1. Do I check "Nontaxable Medicaid waiver payments that qualify as difficulty of care payments" for this W2?

2. If I check it, it asks how much of the box 1 income in W2 is used for difficulty of care payment.  I choose All of it.  Then It asks if there are any difficult of care payments that aren't in Box 1.  I choose Yes, b/c the number in Box 1 is different than what was received and I enter the difference.

Is this the correct way of handling total payment received vs what was reported in W2 box 1?

[KamranFord]

I received TWO W-2s because I am in home service provider for both of my parents. Turbotax gives me error message saying there are duplicate, but they are not. Same employer but 2 different people.

I also had error message because Box 1 said 0 (so after some research I found out I can put $1 so the software works)

This is giving me so much headache I don't want to even include them in my tax returns. However I work hard and want this income included in my social security income for when I retire.

What should I do? I also don't want to file a paper copy.

[CatinaT1]

TurboTax can exempt income under Notice 2014-7 per the IRS instructions. 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.   

   

Here is how you will enter it.:   

Click on Wages and Income at the top of the screen 

Scroll down to "Less Common Income";   

click on Show More;  

click on Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C;  

click on Start or Revisit next to Other income not already reported on a Form W-2 or Form 1099;  

Did you receive other wages, say yes;  

Wages earned as a household employee, leave blank and click continue;  

Sick or disability pay, leave blank and click continue;   

The next question asks about non-taxable Medicaid waiver payments, enter the amount here,  

Click Continue.   

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

[ronsoricelli]

If you received a W-2 you must include it in your tax form. Turbo Tax has a section regarding IHSS in their APP. It is within the Income section and will guide you through the entry.

[KrisD15]

It is strange that you were issued a W-2, you might want to speak with the agency about that. 

I suggest you enter the income as I instructed above. 

It is a bit complicated, but for a credit, the program needs to know the amount you received (which is NOT on the W-2). 

Next, because it is not taxable, you need to make that second entry to back the same income out. 

I also would point out that funds which go to your Social Security Account is done by the agency which employs you. 

The FICA (Social Security) tax would be listed on your W-2 Box 4. 

AS FAR AS THAT MONEY GOING INTO YOUR SOCIAL SECURITY ACCOUNT, It does not matter if you report the W-2 on a tax return or not. 

It is deposited through your employer.

Social security tax is not computed on a tax return unless you are Self-Employed and file Schedule C. 

You don't pay INCOME TAX on IHSS payments, but you may use the income to get a Earned Income Credit if the other requirements ate met. 

If the program is giving you headaches, and Box 1 on the W-2 is zero, you may combine the amounts of both W-2, add what you did receive (to get a credit)  and enter as "Income not listed on a W-2. 

According to the IRS:

"...for open tax years, you may choose to include all, but not part, of these payments in earned income for determining the EIC or the ACTC,..."

[Vachik_z]

This answer was very helpful however, it affects the State tax automatically. Do I need to take these negative numbers out of State tax return now?

Thanks