IHSS Tax Exempt - Can't E-file with W2 having $0 in Box 1

[ajtoff]

I have income, as an IHSS provider, that is tax exempt.  My W2 seems to be correct, in that it's showing $0 for Box 1 and 2, however Turbotax won't let me E-file for that reason.  Am I able to use the alternate method to file by entering the income as Less Common/Misc Income so that I can still E-file?

I have $0 in Box 1 and 2, but I do have Social Security Tax and Medicare withheld in Boxes 4 and 6.

[GiseleD]

A workaround for this is to enter $1.00 in Box 1 when making your W-2 entries. This should prevent the IRS from rejecting the e-file. You will be taxed on an extra dollar, but you are avoiding the cost of stamps and printing your return. 

[ajtoff]

Ah, I didn't realize this was allowed, thanks, might make it easier. 

[ThomasM125]

If your income is exempt and you didn't have any tax withheld, then you can just leave the W-2 off of your tax return, provided your tax does not change when you remove it.

[ajtoff]

I did have Social Security Tax and Medicare withheld.  Does this not matter?  But, no, it doesn't change the refund values when I remove the W2. 

[JamesG1]

The intent of the ‘Less Common Income’ method is to not enter the W-2.  However, I can see the advantages of posting the $1 W-2.

This help explains how to enter any Federal or state withholding (not Social Security and Medicare in boxes 4 and 6).

Be sure to retain all your documentation.  The IRS is likely to ask questions about this income at some later time.

[Zeeebear64]

Won't the IRS kick it back, due to it NOT matching what the W-2 says, if you enter $1.00 in the WAGES box to get it to take, but the wages actually show ZERO?  Last year when I used Turbo tax I was wondering how do to this also.  I ended up mailing it in, and due to COVID it took until JULY to get the refund.  Even though I mailed it on January 31st.  I just don't want it to get rejected, and then have to resubmit, and end up having to mail it anyway.  I'm trying to find out if someone has actually done that before.  With over 400 THOUSAND IHSS provider's in California, there must be someone who has done it this way, and can confirm...  😁😁😁

[Zeeebear64]

Hello, did you end up taking the experts advise and putting the $1.00 in the WAGES box, so you could E-file?  I'm in the same dilemma, but I want to make sure the IRS won't reject it because it doesn't actually match the W-2.  Because the W-2 shows ZERO in wages.  I just don't want it to get rejected, and then I have to end up sending it by mail anyway.  I'm trying to find someone who ACTUALLY E-filed their IHSS taxes doing the $1.00 wage thing, and was SUCCESSFUL with it.  Thanks...

[CatinaT1]

If your W-2 shows $0 in box one, you do not need to enter the W-2 at all.  If you have an amount in box one, follow these instructions.

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. 

If these payments are paid to you in box 1 of form W-2 (they should not), first try to get a corrected Form W-2 from the payer. If you cannot get a corrected Form W-2, follow these steps: Do not enter the W-2 in the Wages & Salaries topic. Instead enter it as Other Reportable Income under the Miscellaneous Income section. Take the following steps: 

1. Sign in to TurboTax Online, click Continue your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);

1. Click on Federal Taxes at the top of the screen;
2. At the bottom of Your Income box pick the option in blue to help me add other income, then jump to full list;
3. Scroll down the page to the last section titled: Less common Income and click show more;
4. Select start or update next to the last topic titled Miscellaneous Income, 1099-A, 1099-C;
5. Scroll down to the last option titled Other reportable income and select start or edit;
6. When it asks, "Any other reportable income?" say yes then you will make two entries:
7. Your first entry description would be W-2 EIN # (enter EIN number from W-2) Box 1 Medicaid Waiver Payments, and enter the Box 1 amount as a positive number.
8. Next you click "Add Another Miscellaneous Income Item," and enter this 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. 

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

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

[Zeeebear64]

Hello, now I'm even more confused 😁.  I just needed to know if "putting the $1.00 in the WAGES box, so you could E-file, actually had worked for People.  Because I'm in the same dilemma.  But I wanted to make sure that the IRS won't reject it because it doesn't actually match the W-2.  Because the W-2 shows ZERO in wages.  I DO have to show social security and Medicare taxes being taken out.  I KNOW how to do that.  I also KNOW how to OFFSET the wages for the "IRS Notice 2014-7 excludable income".  I JUST need someone to verify about the "$1.00 added to the wage box, so the E-file will go through"..  Thank's...

[CatinaT1]

You can not put $1 in wages if your W-2 does not show $1, that would be intentionally filing an incorrect return.  If box 1 is $0, it doesn't matter what is shown for social security and medicare wages or withholdings.  You simply leave the entire W-2 off your return.

If your W-2 shows $0 in box 1 - leave the entire W-2 out.

If your W-2 shows an amount in box 1 - follow the steps above.

[Stanfordmom2]

I did this and it worked perfectly!  Shows no errors, says I can file now -  

Thank you 

[Zeeebear64]

How come it doesn't matter what is shown for social security and medicare wages or withholdings?  I thought any TAXES that are WITH HELD, and you got a W-2 for them you HAD to show that?  Isn't that like any other tax that gets withheld and you have to show?  And if you took up on the Turbo Tax Community Board 1/2 the EXPERTS tell you, you DO have to file the W-2, even with ZERO in the wages...  It's VERY confusing... 

[DawnC]

Yes, you should file the W-2 if it has SS and Medicare taxes withheld (boxes 4 and 6).   It is earned income and the payments are credited to your social security and medicare account for retirement.   You can include the W-2 but if it has no wages in box 1 it won't be able to be e-filed.   Your return would need to be paper-filed.   You can ask the issuer for a corrected copy and have them enter the real amount on Box 1.   Then enter the corrected W-2 and just do the one negative entry in the miscellaneous income section to remove the wages from your tax return.  But you can leave them if they help you get a larger Earned Income Credit.    The $1 trick will allow the return to be e-filed, but as mentioned above, you are choosing to file an altered tax document which is frowned upon by the IRS.    @Zeeebear64

[kd2021]

Omitting from your IRS return a W2 with $0 in Box 1 will NOT work if your W2 shows uncollected Medicare tax.  This can happen when a retiree worked a short period in 2020.