Medicaid waiver payments

[debbiem44]

I can't get the state to reissue my W-2, and I am confused as to reporting my tax exempt income.  Why do TurboTax Community Q&As say to remove my income from line 7 in Wages & Salaries altogether and put two offsetting line entries into Miscellaneous Income (rolls into line 21),   while the IRS Q&A says to leave income in line 7 and only put the negative income amount into line 21? 

[VolvoGirl · Accepted solution]

Where did you see the wrong Turbo Tax instructions?  We need to fix that.

I just did my sisters return today.  She has that too.  Here is the proper way,
There are a couple ways to enter a W2 for IHSS wages.

1. Enter the W2 as normal wages on line 7.  

Then make an entry on 1040 line 21 Other Income to offiset it by going to
Federal Taxes
Wages and Income
Choose Jump to Full List -or  I'll choose what I work on
Scroll way down to the end  - Less Common Income
Click start or update next to the last one "miscellaneous income"
Then the last one for Other Reportable Income
For description enter “Notice 2014-7” . Enter the amount with a minus sign (-) in front of it.

2.  Or when you enter the W2 it gives you the EIC credit for it (which would be wrong) see this FAQ
https://ttlc.intuit.com/questions/2635384-qualified-medicaid-waiver-payments-on-a-w-2-show-as-earned...

So you either completely exclude the W2 from your return or enter it under Miscellaneous Income.   To enter it as Misc Income use the same steps as above and you will make 2 entries.

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.

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.

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

[debbiem44]

Thanks so much!   I must have been confused by the EIC issues.

[Sandradi66]

My question is in regards to issue I encountered when I included my Medicaid Difficulty of Care payments under Misc. That works fine for Federal taxes. However, when Federal copies info into PA, the Medicaid Payments don't' register. According to the IRS, PA considers these payments as income. How Do I add W2 Box 1 on PA Taxes? It keeps giving me an error message stating I can't add W2 that isn't listed on Federal.