IHSS Live In Provider Roth IRA Contribution

[Chlo3tran]

I am a Live In Provider for my mom in California. My W-2 Box 1 shows $500 for the first month income while waiting for form SOC 2298 to get processed and approved. $500 + $18,000 excluded income = $18,500 Total Income. Can I contribute $6,500 to Roth IRA?

If yes, how would I input in the 1040? Would I have to file State Tax too? And correct me if I’m wrong… Some or all of this income may be included or excluded in California State Tax but, it’s all or none for Federal Tax?

[ThomasM125]

Yes, you can treat the IHSS income as earned income for purposes of your IRA contribution. It will not be taxable on your federal or state tax return.

In the Federal section of TurboTax, follow these instructions to enter your IHSS income and a credit to remove it from taxation:

1. In the Wages and Income section of TurboTax find Less Common Income

2. Choose Miscellaneous Income from the list , then Other Reportable Income

3. Choose Other Income not already reported on a W-2 form 

4. Answer "Yes" on the screen that says Other Wages Received

5. Continue through the screens until you come to the Other Earned Income screen  - answer "Yes"

6. Choose the Other option on the screen referencing the source of earned income

7. Enter "Notice 2014-7" for the description on your IHSS income and the amount on the screen that says Other Earned Income

8. Repeat steps 1 and 2 above

9. Indicate that you have other taxable income when asked

10. Enter "Notice 2014-7" for the description and your IHSS income as a negative number

You can include the income for California and federal tax purposes as it relates to an earned income tax credit, but exclude it from taxation. You must include all of the income however, you are not able to choose a smaller amount to reduce your tax liability.

[Chlo3tran]

Thank you for your instructions. I’m lost at step 1… it sounds simple but, I’m so lost. Do I put $500 in Box 1? I don’t see Miscellaneous Income… is this where I put $18,000 or $18,500? Will it be negative $18,000 or negative $18,500. Since the SOC 2298 was not processed yet during the first month, the $500 cannot be excluded income?? Where do I put the IRA contribution? Federal Tax, I must include none or all my income but, State website says, I can include all or a portion of the income… please confirm? Since I have the $500 income, do I need to file State Tax?

If Box 1 is $0 and I file Federal Tax for EIC, would I need to file State Tax as well?

Sorry if I sound confusing…. this is my first time filing tax and it’s all foreign to me :(

[ThomasM125]

The $500 can be excluded from income. You enter your W-2 form to report the $500. I assume you don't have a reporting tax form for the additional $18,000, so that is what you need to report in the miscellaneous income section in TurboTax as a positive number:

On the next page you will see the option for Other Income not already reported on a Form W-2 or Form 1099:

You work through that section to report the $18,000 income as a positive amount. Next , you return to the Miscellaneous Income section referenced above to make the $18,500 negative adjustment. On the next page after your choose Miscellaneous Income you will choose Other Reportable Income:

That is where you enter the -$18,500:

You enter the IRA contribution in the Deduction and Credits section of TurboTax under Retirement Plans and Investments

[Chlo3tran]

Am I still required to file CA State Tax?

[KrisD15]

The instructions for reporting nontaxable Medicaid Wavier Payments have been updated for Tax Year 2023. 

There is no longer a need to enter the negative adjustment. 

• Wages & Income
• Less Common Income
• Miscellaneous Income, 1099-A, 1099-C  
• START (or Update)
• Other income not already reported on a Form W-2 or Form 1099 
• START (or Update) 
• Select "YES" to Other Wages Received
• CONTINUE
• Continue through "Wages Earned as a Household Employee" and "Sick or Disability Pay" 
• Next screen is "Certain nontaxable Medicaid wavier payments not reported on Form W-2 or 1099"
• Enter the TOTAL amount on this screen and CONTINUE 

For California, again the option is all or none of the income. 

It is possible that claiming the income on your California return would result in a credit. 

Link to CA EITC calculator