Do I only enter IHSS wages in the Other Reportable Income section?

[avtar]

The Provider lives with the Recipient. The provider received a W2 with an amount on Box 1, and $0 withheld in Box 2.

Do I simply enter a positive and negative amount in the Other Reportable income section? Or do I also enter the W2?

I am currently qualifying for the Earned Income Credit, if I add IHSS wages it will disqualify me. How do I approach this?

[ColeenD3]

"Do I simply enter a positive and negative amount in the Other Reportable income section? Or do I also enter the W2?" You enter it in other reportable income. If you enter the W-2, you will be taxed.

"I am currently qualifying for the Earned Income Credit, if I add IHSS wages it will disqualify me." That is correct. You can't have it both ways.

[avtar]

"That is correct. You can't have it both ways." I have added the wages in Other Reportable income as suggested, as a positive entry and negative entry. No W2 was added. This actually does not alter the EIC since my tax owed did not go up. But I thought it should alter the EIC eligibility?

[DawnC]

You can choose to include the payments as earned income, but you are not required to.  The way you entered the payments (a positive and negative entry to other income), the amounts are not included as wages for the purposes of the Earned Income Credit.   If you want to include the income for the purposes of the EIC or if you want to see how it affects your EIC, you would enter the W-2 as is and only enter the negative entry in the other income section.  

Even though Medicaid Waiver Payments are not taxable for federal income tax purposes, the payments can be used to calculate the earned income tax credit. In a recent court case, it was ruled that Medicaid Waiver Payments are considered "earned income" for purposes of calculating the earned income tax credit. A taxpayer can choose to include Medicaid Waiver Payments as Wages on line 1 of Form 1040 (even if not reported on a W-2) in order to claim the credit. Then an adjustment is entered on Schedule 1, line 8 so the payments are not included in taxable income.

[avtar]

Thank you for your response. I am going to go ahead and leave off the W2 and add the positive/negative entries.

Also, I have read the IRS instructions as it states exactly what you said, and it seems like it contradicts itself, unless I am misinterpreting it.

Per IRS instructions 1040 (2019):

"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. If the result is less than zero, enter it in parentheses. Enter “Notice 2014-7” and the nontaxable amount on the dotted line next to line 8. For more information about these payments, see Pub. 525."

The information in bold wants me to add my W2. However, the next sentence that is underlined seems to contradict it and saying I should choose whether to include it or not.

Then in another section for Line 1 instructions, it states:

"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 didn’t receive a Form W-2 reporting these payments. See the instructions for Schedule 1, line 8."

Again, these instructions want me to choose as well.

[ColeenD3]

Please see this answer by Amelie's Uncle:

EIC and IHSS