How to enter IHSS live-in provider W2 with Zero in Box 1?

[jackkgan]

Vanessa A, Please help confirm which instruction to follow : a) Whether I should delete my IHSS W2 or b) if it is ok that I followed the instructions below and if I will be able to still e-file and without errors. Thank you!

In the post below, MarilynG1 had suggested

https://ttlc.intuit.com/community/taxes/discussion/w2-with-zero-in-box-1-ihss-live-in-provider-quest... 

MarilynG1  Employee Tax Expert

Enter your Box 3 amount into Box 1 of your W-2 (reported as $0), and choose 'Nontaxable Medicaid waiver payments that qualify as difficulty of care payments' on the Uncommon Situations page, on the following pages indicate that 'all of it' in Box 1 is for difficulty of care payments, and that  you did not get any other difficulty payments that are not in Box 1 (since you're entering the Box 3 amount already). 

This removes the income from taxation, but includes it for any credits you may qualify for (EITC, for example). You'll see the income included on Form 1040, Line 1, but then subtracted out on Line 8.

Your Efile will be rejected with a $0 in a W-2 Form in Box 1.

[Vanessa A]

TurboTax was updated since that post and SOME people are able to e-file leaving Box 1 blank.  
 

So, you can first try to enter your IHSS W-2 exactly as it appears on the paper leaving box 1 blank or entering $0.  Then you can attempt to e-file.  If it is accepted, then you are good to go.

If it is rejected, then follow my post above which I am going to copy and add to this below.  

If you have 0's in box 1, and you are not trying to use this income to claim the Earned Income Tax Credit, then you do not need to enter these on your return. 

If you are eligible and do want this income included in the calculations for the Earned Income Credit, then if these are from the same place you can combine them or enter just one.  

Follow these steps to enter your IHSS payments AFTER deleting your W-2 by clicking the trashcan in the summary page next to the W-2:

1. Select income
2. Miscellaneous Income which is under Less Common Income
3. Other Income Not already reported on a Form W-2 or Form 1099
4. Select Yes to did you receive any other wages
5. Continue to the box that asks for your Medicaid Waiver payments
6. You will be asked about using this income for the Earned Income Credit
7. After you do this, if you select yes, you will need to visit the credits and deduction section to answer the Earned Income Credit questions.
8. Continue through to file your return

[jackkgan]

Thank you so much Vanessa A ! I tried both methods.

I request help in choosing from these 2 options. Option 1 increases my taxes as I will lose the credit for medicare, social security and CA VPDI. My main question is whether IRS will be unhappy if used the previously recommended option 2 to include the IHSS W2 by copying box 3 to box 1 and choosing Nontaxable Medicaid waiver. 

1) Option 1: Delete my Live-in-provider IHSS W2 for  completely as I won't qualify for Earned Income Credit.

• Pros: Probably no risk.
• Cons: My taxes owed will increase by $2000 as I will lose the credit for a) Medicare Box 6 (Form 8959 line 19) : Added (line 23 of 1040), Excess Social Security Withheld : Added W2 Box 4  (1040 line 31, 32) and CA VPDI from box 14 (540 CA adjustments Line 5a Col B)

2) Option 2: 

• Pro: Reduces taxes by $2000 if I include my W2 and follow the previously recommended procedure which was to enter Enter your Box 3 amount into Box 1 of your W-2 (reported as $0), and choose 'Nontaxable Medicaid waiver payments that qualify as difficulty of care payments' on the Uncommon Situations page, on the following pages indicate that 'all of it' in Box 1 is for difficulty of care payments, and that  you did not get any other difficulty payments that are not in Box 1 
• Con: Will IRS be ok with the above of copying box 3 to box 1 and taking credit on Medicare, social security and CA VPDI?

[AmyC]

You misunderstood the step. How do I enter my tax-exempt Medicaid waiver payments from IHSS in TurboTax?

This is what you can do:

1. Put your box 3 information in box 1 and
2. keep your box 3.
3. mark uncommon situation,
4. select difficulty of care,
5. enter full box 1 amount.

[jackkgan]

Thank you so much AmyC ! I appreciate your help and advice.

As per my understanding, I think I did the same as you wrote. Please find the screen shots below and kindly let me know what I mis-undestood or missed.

W2 entries (Example)

• Box 1: 0
• Box 2: 0
• Box 3: 38778.25 (Social security wages)
• Box 4: 2404.25 (Social security tax withheld)
• Box 5: 38778.25 (Medicare wages and tips)
• Box 6: 562.28 (Medicare tax withheld)
• Box 12a: II : 38778.25
• Box 14: CA-SDI: 426

TurboTax entries:

1. Put your box 3 information in box 1 and

2. Keep your box 3

Please note: TT W2 import did not pick up the value in Box 12a, but I left it empty as suggested.

3. mark uncommon situation,

4. select difficulty of care,

5. enter full box 1 amount.

Screen: Let's check for uncommon situations:

Did you get any difficulty of care payments that aren't in box 1? (This includes payments in other boxes or that aren't on your W-2:

- NO (chose )

Question: Above entries are resulting in credit for ) Medicare Box 6 (Form 8959 line 19) : Added (line 23 of 1040), Excess Social Security Withheld : Added W2 Box 4  (1040 line 31, 32) and CA VPDI from box 14 (540 CA adjustments Line 5a Col B)

Please confirm if that would be acceptable by IRS to take those credits though the income is non-taxable.

Form 1040:

Below are the lines in 1040 where TurboTax is adding those credits:

a) Social Security withheld = 2,404 (IHSS Box 4)

b) Medicare tax withheld Box 6 (Form 8959 line 19) entered into line 25 c of 1040

Below in 540 California Adjustments: Section: Taxes you paid:

c) CA SDI: Box 4 of W2 426.567 added to Line 5a Col B: State and local income tax withheld

[DianeW777]

Yes, you have made the correct entries which in turn flow to your California (CA) return appropriately.  As indicated by @AmyC the following link also takes you step by step for IHSS wages.

• How do I enter my tax-exempt Medicaid waiver payments from IHSS in TurboTax?

@jackkgan 

[jackkgan]

Thanks very much DianeW777 , for confirming that my entries are correct as per the steps sent by AmyC .

I would be grateful for your confirmation.

I had 2 different employers with one of them being IHSS.

So, please confirm my understanding if you meant that it is ok to take credit for my IHSS Box 4 (social security tax withheld), box 6 (Medicare tax withheld) and CA-SDI (Box 14) though the IHSS Income is not taxable. Thanks again

a) Social Security withheld = Box 4 of W2= $2,404 added to line 32 of 1040 :Total other payments and refundable credits.

b) Medicare tax withheld = Box 6 of W2 = $526.28 (Form 8959 line 19 added into line 25 c of 1040: Payments: Federal income tax withheld from: (Other forms)

c) CA-SDI: = Box 14 of W2 = $426.567 added to Section "Taxes you paid" : Line 5a Col B:  "State and local income tax withheld"

[jackkgan]

Thanks DianeW777  for confirming that my entries are correct  AmyC .

Requesting and just waiting for one last confirmation:

I had 2 different employers with one of them being IHSS.

So, please confirm my understanding if you meant that it is ok to take credit for my IHSS Box 4 (social security tax withheld), box 6 (Medicare tax withheld) and CA-SDI (Box 14) though the IHSS Income is not taxable. Thanks again.

[DaveF1006 · Accepted solution]

Even though the income is non-taxable, you can still take credit for amounts withheld in Box 4 (Social Security tax), Box 6 (Medicare tax), and Box 14 (CA-SDI). These withholdings are separate from the income's taxability.

@jackkgan 

[dipsys]

So we have to use a work around to e-file and not enter Box 12 even though it is there in the ihss W2 because Turbo Tax software cannot get this right? Entering Box 12 TT is correctly deducting the ihss W2 income but then sending the W2 with $0 income which is causing the IRS to reject this.

Leaving Box 12 blank and using Medicaid Waiver option (as was done in the past years) gets around the $0 W2 issue - but Box 12 is blank which it technically should not be.

[AmyC]

You can enter the full amount in box 1 wages and then mark that it is an uncommon situation and select it is all nontaxable. 

@dipsys 

[dipsys]

My point is that Turbo Tax needs to fix the issue in the defective software and not have us use workarounds!

We have to skip entering the value in Box 12 as a work around which is not correct.

[KrisD15]

No, it is not a work-around, in fact it is an update from last season. 

This season you needn't use a work-around, you simply enter the W-2 and select the proper situation that W-2 pertains to. 

Thank you for using TurboTax. 

[dipsys]

But if we simply entered the W2 with Box 12 a value, then it is rejected at efiling by the IRS because of the $0 inbox 1 of the W2. If I enter the B12 a value then the option to select the Medicaid waiver does not appear in the uncommon situations screen. So this is definitely a defect and work around of putting a value in Box 1 and leaving Box 12 a is being used.

[MonikaK1]

If one of your W-2s is for IHSS Medicaid Waiver payments, and you have a zero in Box 1, see this help article for more information. 

Normally:

If the only entry on your W-2 is in Box 12 (there's a blank or a $0 in Box 1), and you want to use the income to qualify for Earned Income Credit or Additional Child Tax Credit, you can enter the W-2 as is.

If the only entry on your W-2 is in Box 12 (there's a blank or a $0 in Box 1) and you don’t want to use the income to qualify for Earned Income Credit or Additional Child Tax Credit, you don’t need to enter the W-2 at all.

However, you have an unusual situation in that you appear to be entitled to a credit for excess Social Security withholding between your IHSS W-2 and the W-2 form your other employer, so you will want to enter the Social Security withholding for both (assuming you have verified that you identified all of the W-2's correctly in TurboTax as belonging to either "self" or "spouse").

We tested the situation with Box 1 being zero earlier in the season when the IHSS help article was being updated. The Box 12 code and related TurboTax steps are new this year. At that time, the steps in the article were working. 

Try entering $1 in Box 1 of the IHSS W-2 instead of zero. Check your return to confirm that the IHSS income is excluded only one time. 

@dipsys