How do I enter a W2 received for "Difficulty of Care" Notice 2014-7 that is considered nontaxable? There is an amount listed as wages in Box 1.

[weinrauch]

I perform household duties for my disabled 18 year-old daughter, who lives in my home.

[DoninGA]

See this TurboTax support FAQ for difficulty of care - https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-w-2/qualified-medicaid-waiver-payme...

[weinrauch]

Thank you, but my situation does not fit either of those options because I received a W-2 and it has an amount listed in Box 1.  If I follow the option in the tutorial that says "I received a W-2 with $0 in Box 1", it tells me to enter the amount from Box 3 on my W-2 (which is $0)  in Box 1 of the online form.  Then I assume that I should enter the amount of State wages, tips, etc. from Box 16 on my W-2 as it appears (this is the same number in Box 1 on my W-2).  Then the tutorial says to check the "Nontaxable Medicaid waiver payments that qualify as difficulty of care" box and follow the tutorial instructions to enter the amount from Box 3 on my W-2 (which is $0).  Is this correct that the only place in TurboTax where I'm entering the amount that I received is in the State wages (Box 16)?

[ThomasM125 · Accepted solution]

Since your Difficulty of care payments are listed in box 1, you don't need to pay any attention to the instructions referencing box 3. So, don't indicate that any of your Medicaid waiver payments are listed in other boxes. On the screen that says Let's check your Medicaid waiver payments, you just need to check the option that says "all of it" under the question that says How much of the (box 1 $) in box 1 is difficulty of care payments?, assuming all of the benefits in box 1 are Medicaid waiver payments. Otherwise, choose one of the other options and enter the amount that is Medicaid Waiver payments.

You can look on line 8(s) on schedule 1 to see the amount of Medicaid waiver payments being excluded from your taxable income.

To view your form 1040 and schedule 1 to 3:

1. Choose Tax Tools from your left menu bar in TurboTax Online
2. Choose Tools
3. Choose View Tax Summary
4. See the Preview my 1040 option in the left menu bar and click on it
5. Choose the Back option in the left menu bar when you are done 

[branderboy]

You guys are extremely confusing!!! Why are you referencing a form view instead of the software view in turbo tax, answer questions using step by step process.

[CatinaT1]

Tax-Exempt Medicaid Waiver Payments from IHHS  

TurboTax can exempt income under Notice 2014-7 per the IRS instructions for Medicaid Waiver payments from IHHS. 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. Additionally, you can choose to use this income to calculate Earned Income Credit. Regardless, the income will remain non-taxable.     

This tax-exempt income can be reported to you differently depending on the State and County you live in. You might receive a W-2, 1099, and no form at all.   

See the instructions below for how to report this depending on how the income was reported to you.  

If you received a W-2 with $0 in Box 1:  

1. Sign in to TurboTax Online, click Continue to your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Under Wages and Income, click Start;      
4. Click on Work on my W-2, and enter the information as reported on your W-2.     
5. After entering all your W-2s, you will see the screen, Let’s check for uncommon situations. Next to Nontaxable Medicaid waiver payments, check the box.  
6. You will enter the amount of Medicaid Waiver Payments into the box asking for the total amount of difficulty of care payment you received from IHHS. This will be the same amount reported in Boxes 3 and 5 of your W-2.  
7. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

If you received a 1099 or no form:  

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);     
2. Click on Federal Taxes, and then click on Wages & Income;     
3. Scroll down to Less Common Income;       
4. Click on Start next to Miscellaneous Income, 1099-A, 1099-C.  
5. Click on Start next to, Other income not already reported on a Form W-2 or Form 1099;      
6. Answer Yes to Did you receive any other wages?;      
7. Leave blank the box for Wages earned as a household employee and click continue;  
8. Leave blank the box for Sick or disability pay and click continue;       
9. Enter the amount of Medicaid waiver payments on Certain nontaxable Medicaid waiver payments not reported on Form W-2, and click Continue.  
10. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

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