IHSS W2 as live-in provider

[johnkgan]

Hi there, I am a IHSS Provider living with my recipient. I had submitted the live-in provider certification. But I still received W2, and my wages show up in Box 1 (Wages) and box 16 (State wages), box 3 . But the Box 2 (federal income tax withheld) is 0, and Box 17 (State income tax) are 0. Please confirm if that means that I don't have to pay federal and state tax or if I should reach out to IHSS and ask them why wages shows up in box 1 and box 16 even though I had submitted the SOC 2298 form? Thank you. 

[Bsch4477]

Entering the W-2 amount in box 1 will be treated as earned income making you eligible for earned income credit if you otherwise qualify. To prevent that amount being taxed, offset that amount as follows:

1. To enter the offset for the payments(whether you chose to report as earned income or a 1099): Click on Wages and Income at the top. Scroll down to "Less Common Income"and click on Show More. 
2. 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
3. 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

[ColeenD3]

No, this is not taxable income. You can merely exclude it on the tax return by following the steps below.

You would enter the income and then back it out.

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. 

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.

[Critter-3]

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

[johnkgan]

Thanks again @ColeenD3 !

Just for context: My mom has been living with me for many years. But I submitted the live-in provider form only  in May 2021 though I have been her formal provider since March 2020 as I had not bothered to submit such paper work earlier. So I got W2 with taxes in Box 1 from Jan-May 2021 and was told that I can nullify it while submitting taxes and that it can't be reverted in their W2. 

I followed your steps. I see 2 methods below, but the taxes are $2000 less in method 1 than method 2 may be because of entering all the boxes (taxes withheld etc.). Please confirm if it is ok to follow method 1. Thank yoou.

1) Enter info from all boxes of W2 in Wages & Income and then nullify that by entering negative value of Box 1 under Miscellaneous income. 

2) Make 2 entries in Miscellaneous income - one with positive and another with negative of only the amount from box 1 in W2. 

Thanks Again!

[DMarkM1]

You should use method 1.  Since the income is being reported to you and the IRS on a form W2, the payer is treating you as an employee and withholding social security and medicare.  You should enter the form W2 as normal to report the wages in line 1 of your form 1040 per question 11 in this IRS FAQ.

You would then follow the steps outlined by @ColeenD3 to enter the W-2 Box 1 amount as a Negative (-) number and enter this description: IRS Notice 2014-7 excludable income  in the "Miscellaneous Income" topic.  

[johnkgan]

Thank you all very much! All the advice and info you shared is super helpful.

[johnsantaclara1]

Thanks DMarkM1. As per your suggestion, 1) I entered all the boxes in my W2 under wages, and 2)  Entered the W-2 Box 1 amount as a Negative (-) number and entered this description: IRS Notice 2014-7 excludable income  in the "Miscellaneous Income" topic. 

Question:

In step 1 above, is it ok to enter all the boxes of my W2 including Social Security Wages , Social Security Tax withheld, Medicare wages and tips, and Medicare tax withheld?

I had that doubt, because I am nullifying only the amount in box 1 in step 2 and not the rest. Thank you.

[KrisD15]

Yes, enter the W-2 as it is reported to you. 

The negative entry eliminates the taxable income. 

The Social Security tax was really submitted to your social security account, so there is no reason to nullify that. 

Same with Medicare.