2014-7 Difficulty of care act

[cottagecharm11]

I am exempt from taxes on my W-2 income taxes due to the "Difficulty of Care Exemption". In the past using Turbo Tax if any are taxes are withheld in error by payroll they are refunded when I fill out my taxes on Schedule 1. Last year when I got a check, for over $600 for Paid Time Off (PTO) I was issued a 1099 NEC and had to claim it as self-employment. This year the PTO was sent by the Homecare Worker's Benefit Trust on a 1099 MISC. When entering the information as a 1099 MISC I filled the "What is this income for" question as Paid Time Off. The next screen has   'Does anyone of these uncommon situations apply, at the bottom of the list is a place to check the box for "This is a Medicaid Waiver payment that qualifies as a Difficulty of Care payment".  I was told when I received my first 1099 NEC that it was taxable because I did not work for the money, and it was taxable. So I assume I still owe taxes and should check the box "None of these apply"? Is this correct?

[MonikaK1]

Yes, the amount for paid time off is taxable. Enter it in the 1099-MISC section of TurboTax and answer the questions to indicate it's not from working.

See this IRS webpage regarding Medicaid waiver payments, in the Q and A section:

Q8. I am an individual care provider, and I receive vacation pay from the state, as well as Medicaid waiver payments for the care that I provide to a disabled individual living in my home under the individual's plan of care. May I exclude the vacation pay from gross income?

A8. No. The only amounts excludable from gross income under Notice 2014-7 are payments for the care of the disabled individual.

[JoshJordan]

Hello everyone,

I am a live-in provider for a sibling family member - no one else and no other sources of income - and filed the live-in certification in 2016 where only Medicare and Social Security taxes are deducted on the federal level, and SDI deductions on the state level. No FICA or state taxes were ever deducted or withheld. Every year since 2016 my W-2 had Box 1 and Box 5 contain the same total earnings received that year. I would enter every thing normally in TurboTax and then I'd enter the same number as a negative number under Other Reportable Income under the Miscellaneous Income section. Since 2019 I've also contributed to a regular IRA (Secure Act IRC §§408(o), 415(c)(3); SECURE Act §116) and also file Form 8606 for it. I also file as single and not as Head of Household and do not file for EITC.

IHSS sent me a message in 2023 asking me to re-certify for being a live-in provider which I did. When I got my 2023 W-2 I didn't pay close attention to it and waited until early October to file, only to notice that Box 1 and Box 5 of my W-2 are different. Box 1 has the amount from the beginning of the year until the day I was asked to re-certify, and Box 5 has the total amount for the whole year ; pre and post re-certification.

My question is what number would I enter as negative in the Other Reportable Income under the Miscellaneous Income; Box 1 or Box 5? In previous years and since both were the same it didn't matter.

Also, it seems that for 2024 Box 5 will be the total amount received but Box 1 will be zero and unlike previous years. Would the same apply for the Other Reportable Income under the Miscellaneous Income section? And, would I still be able to make IRA contributions? Nothing has changed in my paystub deductions as far as Medicare and Social Security, and no FICA is being deducted.

Thank you.

[cottagecharm11]

You replied to my message and I was the person that was asking for help with my question. Since the experts probably won't be notified of your question to me, you should re-post this as a new question to them in order to get a reply from the tax experts. 

[elenarizzo]

TurboTax does not allow you to enter a negative number!!! Where is the Turbo Tax expert for help here. MANY questions have been posted about difficulty of care and the resources here are not helpful!

[kristalvb]

Are you a W2 employee or 1099?

[elenarizzo]

I receive a W-2; however, the W-2 have been incorrect for several years because I was unaware my income from this employer is income tax exempt. Filling amendments, or attempting too, has been extremely challenging in Turbo Tax.

[MarilynG1]

Yes, if you're entering a W-2 in TurboTax, you need an amount in Box 1 (at least $1), but it can't be a negative number.

If you know your income is tax-exempt and you're not claiming the Earned Income Credit, you don't need to enter your W-2 in TurboTax, just keep it for your records. 

If you do want the EIC, enter your W2 just like it is in that section. You will get to the step on the Uncommon Situations page where you will check that you have Difficulty of Care Payments and TurboTax will ask you how much of the amount in Box 1 is for Difficulty of Care Payments. Indicate the entire amount and that will make it non-taxable income on your tax return.

Here's more info on Entering a W-2 for Difficulty of Care Income.

@elenarizzo 

[elenarizzo]

This might work for 2026, but since I just learned of this exemption, I need to file amendments for 2023 and 2024 and turbo tax does NOT seem to have a way to enter this adjustment without me having to override it and enter a negative number. The reduction in taxable income leads to other credits I was not eligible for when I originally filed, so it is important. If I don't override, TurboTax 2023 treats it like additional income instead of a negative adjustment to income.

[MarilynG1]

If you enter the amount shown on your W-2 in TurboTax 2023, do you get the Uncommon Situations screen, where you can choose type of income?  If so, TurboTax will automatically subtract the income for you. 

Remember the IRS has a copy of your W-2, so it's best to enter as is and then designate it as non-taxable income later in the return. 

If this path does not appear for you in 2023, go to the "Wages & Income" section, find "Less Common Income," then "Other income not already reported," and follow prompts about Medicaid waiver payments. 

You definitely don't want to use a negative number in your W-2 entry for Box 1.

@elenarizzo 

[Edited 1/16/2026 | 2:56 pm]