IHSS Exempt Care Provider

[DaveF1006]

Yes, report this in this manner so that the exclusion appears correctly on your 1040.

1. Record the amounts of say $2000 in Boxes 1,3,5.  Leave Box 12 blank.
2. Now go to "uncommon situations, then select "nontaxable Medicaid waiver payment" and enter the amounts correctly as directed.
3. Now, this will appear as taxable income on Line 1 on your 1040 but then is excluded on Line 8 of the 1040.

I have seen posts that have said to record income in Box 1 and then make an entry in Box 12 but what this ends up doing is adding your income in Line 1A of the 1040 and then again in Line 1D of the 1040, thus doubling the income. Then there is an adjustment on line 8 for the amount of the Medicare waiver payments, but then you are still reporting income of $2000 after this is done.

The only other option in this case is to place a "zero" in Box 1 but then you won't be able to efile.  In addition, you wouldn't be able to use this income for important credits like the EITC, child tax credits, retirement contributions, or other credits that you may be entitled to.

[idunno3]

Hello, oh my goodness I have the exact same situation.  My tax person told me today that she's unable to file taxes for me because there isn't income in box 1 (all zeros except for 12a) and that my income isn't taxable. She said it was a change by the irs and they're trying to eliminate us filing for taxes because she said its like double dipping...meaning we don't have taxes withheld so shouldn't be allowed to file.  However, she said she doesn't agree with cases like ours where we have other children and should be able to file and claim child tax credit. But she still turned me away... I'm currently on line, you tube, etc trying to find an answer to our question.

[Vanessa A]

You are able to use the income to claim the Earned Income Tax Credit.  If you want to claim the EITC, then you can enter your W-2 following the instructions below.  If you do not want to claim the credit, then you do not need to enter the W-2.

I received a W-2 with dollar amounts in Box 1 and “II” in Box 12

If your W-2 includes an amount in Box 1 and Box 12 for tax-exempt Medicare waiver payments from In-Home Supportive Services (IHSS), you should request a corrected W-2 as your payments should only be reflected in Box 12.

If you can't get a corrected W-2, please follow the instructions below:

1. Open or continue your return.
2. Navigate to the W-2 section:
   • TurboTax Online/Mobile: Go to W-2.
   • TurboTax Desktop: Search for W-2 and select the Jump to link.
3. Enter all your W-2 info in the appropriate boxes in TurboTax as they're shown on your form, except leave Boxes 1 through 8 blank.
4. TurboTax will include the amount you entered in Box 12 as income on Line 1d of your Form 1040 and will subtract the amount on Line 8. This means you won’t be taxed on these wages on Form 1040.

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.

[Chlo3tran]

Please confirm IRS new law:

The IRS now requires all IHSS and WPCS providers to report their income, even if they filed the SOC 2298 form. While this income remains non-taxable, providers must include it on their tax forms starting in the 2024 tax season.

[thinkoflaura]

Would love to know the status of this for 2025 filing.

[MarilynG1]

Depending on how your W-2 was issued and whether you want the excluded income to count for the Earned Income Credit, here's detailed info on How to Enter Exempt Medicaid Waiver Payments.

@thinkoflaura 

[semiosis]

Unfortunately that help article is not very helpful. Both of these scenarios in the help article apply to my W2: "I received a W-2 and Box 12 has code II", and "I received a W-2 with zero in Box 1 and amounts in Box 3 and Box 5".  I made Roth contributions based on the earned income, so I have to add the income.

In the first scenario and set of instructions I'm concerned it'll be rejected by IRS for having $0.00 in box 1. The second scenario would have me just add the amounts as other income and tag them as medicare waiver payments, but I'd have to add it in the area for income I received without a W2, and I have a W2 for it. 

Which set of the scenario steps should I follow? 

[DaveF1006]

Since you are dealing with a W-2 that has $0 in Box 1 but amounts in Box 3/5 and Code II in Box 12, you should follow a modified version of the "W-2 entry" approach rather than the "Other Income" route. Here's the recommended entry.

1. The most reliable way to get this accepted for e-file and have it count for your Roth IRA is to "force" the income into Box 1 so the IRS computer sees it as wages.
2. Enter the W-2 exactly as it appears, but with one critical change: Copy the amount from Box 3 (Social Security Wages) into Box 1.
3. Enter Box 12 with Code II and the corresponding amount.
4.  Proceed through the interview until you see a screen titled "Let's check for uncommon situations" or "Any of these apply to these wages?"
5. Check the box for "Nontaxable Medicaid waiver payments" (also called "Difficulty of Care" payments).
6. TurboTax will then ask you how much of those wages were nontaxable. Enter the full amount you put in Box 1.

By putting the number in Box 1, you match the "Earned Income" requirement for the Roth IRA.  By marking it as a Medicaid Waiver payment in the follow-up screens, TurboTax creates a "negative adjustment" on your Schedule 1, Line 8. This removes the income from your taxable total, so you won’t pay income tax on it, but it still counts as "compensation" for your IRA.

[semiosis]

Thank you @DaveF1006 . I should have mentioned that I tried that approach already. The checkbox for "Nontaxable Medicaid waiver payments" is not in the list on the "Let's check for uncommon situations" screen when there is an entry for this in box 12. When I delete the box 12 entry the option is available on that screen, but when I re-add the box 12 entry with code II for medicaid waiver payments, the option is removed from the list on the"Let's check for uncommon situations" screen. 

Would you recommend I delete the box 12 entry so i can check the box on the "Let's check for uncommon situations" screen and add the income there, or add $1 in box 1, or is there some other approach?

[MonikaK1]

You should be able to report the wages in Box 1, so that you have qualifying wages for the IRA contribution, then report the income as a negative amount in Schedule 1. These wages qualify under the SECURE Act for the contribution.

If you are having an issue with making this adjustment, you can send us a “diagnostic” file that has your “numbers” but not your personal information.  If you would like to do this, here are the instructions for TurboTax Online users (please let us know which version you are using): 

Go to the black panel on the left side of your program and select Tax Tools. 

1. Then select Tools below Tax Tools.
2. A window will pop up which says Tools Center.
3. On this screen, select Share my file with Agent.
4. You will see a message explaining what the diagnostic copy is.  Click okay through this screen and then you will get a Token number.
5. Reply to this thread with your Token number. This will allow us to open a copy of your return without seeing any personal information.

We will then be able to see exactly what you are seeing and we can determine what exactly is going on in your return and provide you with a resolution.

 Here are the instructions for TurboTax Desktop users:

1. From the black bar at the top of your screen, select Online
2. Click Send Tax File to Agent
3. Click Send on the message that pops up
4. TurboTax will create a "sanitized" copy of your return information with no personal info
5. Post the full token number here in this thread

We will then be able to review your file to see what you are seeing, and we can determine what is going on in your return and provide you with a suggested resolution.

@semiosis 

[semiosis]

Thank you @MonikaK1. I'd always been blocked from e-filing in the past and assumed a work-around would be necessary again this year. The TT help doc also seemed to suggest I'd need a workaround based on the data in my W-2. But I discovered after paying and clicking through to the e-file screen that I wasn't being blocked from e-filing, despite the fact that my W-2 had both code II in box 12 and a zero in Box 1 and amounts in Box 3 and Box 5. Fed and state returns have both been accepted, and I see the correct amount on line 1d of the return. 

Hopefully, this is good news for my CA compatriots with similar W-2s.