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norcal2019
Level 1

IHSS Income Taxes Withheld

For 2019, I had IHSS income since I was a provider for my mother (Recipient). My mom lives in the same house as me. I didn’t realize that the IHSS income should have been exempt for federal and state taxes. However, I did pay federal and state taxes in 2019 for the IHSS income. I have received the W2 form which shows the taxes withheld.

 

I did call the county IHSS and they offered to fix it for year 2020. They said they can’t do anything for 2019 year.  Question:

 

How do I get the federal and States taxes back from the 2019 year (which should have been exempted).

1 Best answer

Accepted Solutions
BarbaraW22
Expert Alumni

IHSS Income Taxes Withheld

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 21) 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.

 

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9 Replies
BarbaraW22
Expert Alumni

IHSS Income Taxes Withheld

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 21) 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.

 

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avtar
Returning Member

IHSS Income Taxes Withheld

Hi, my wife is a IHSS provider who lives with the recipient.

 

With our current income, we are eligible for the Earned Income Credit, but once I add the IHSS W-2, and negate it in Other Income section, it does not qualify me for EIC anymore.

 

So can I choose to delete the W2, and enter 2 entries under Misc. Income (one as positive, and another as negative). Therefore qualifying me for Earned Income Credit?

 

Is this correct

LeonardS
Expert Alumni

IHSS Income Taxes Withheld

That is correct, IHSS income does not count as Earned Income for purposes of the Earned Income Credit

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VolvoGirl
Level 15

IHSS Income Taxes Withheld

You can choose to use IHSS income to qualify for EIC.

See 1040 instructions page 84

https://www.irs.gov/pub/irs-pdf/i1040gi.pdf

 

avtar
Returning Member

IHSS Income Taxes Withheld

I am confused on what you mean VolvoGirl.

 

I want to be qualified for the EIC. If I add anymore income it disqualifies me.

 

So by NOT adding the W-2 and simply adding the positive and negative entry is the proper way to do this correct? By doing this, my tax owed does not change which I am satisfied with. As long as this follows IRS instructions.

ColeenD3
Expert Alumni

IHSS Income Taxes Withheld

Please see this answer from Amelie's Uncle:

 

 Certain Medicaid waiver payments you received for caring for someone living in your home with you may be nontaxable. If these payments were reported to you in box 1 of Form(s) W-2, include the amount on Form 1040 or 1040-SR, line 1. Also, include on line 1 any Medicaid waiver payments you received that you choose to include in earned income for purposes of claiming a credit or other tax benefit, even if you did not receive a Form W-2 reporting these payments. On line 8, subtract the nontaxable amount of the payments from any income on line 8 and enter the result. If the result is less than zero, enter it in parentheses. Enter “Notice 2014-7” and the nontaxable amount on the dotted line next to line 8. For more information about these payments, see Pub. 525

 

IHSS and EIC

 

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mchandna2003
New Member

IHSS Income Taxes Withheld

Hi Avtar, 

This is Manoj. I am in the same boat. Can we discuss further. My Email is <email removed>

Thank you,

DriftSpace
New Member

IHSS Income Taxes Withheld

Thank you!

 

FYI to everyone for whom this applies:

 

The first year I did not file in this way -- the first year I excluded my W-2, and just entered the EIN on the exemptions line later, as detailed elsewhere on the site -- I received a letter from the IRS which said I did not report my income, and therefore owed tax. The situation was resolved, but it was a hassle, and a waste of time. I followed "VolvoGirl's" instructions, which I found in a search for "2014-7" and that's what resulted in the IRS letter.

 

If you receive a W-2 form your employer, and 2014-7 applies to you: these are the instructions to follow.

JJEM
New Member

IHSS Income Taxes Withheld

Thank you, thank you, and thank you!

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