IHSS Tax Exempt - Can't E-file with W2 having $0 in Box 1

[de123]

Okay, I think I got it finally! Tell me if I am right.  I can select the "all of it" option regarding Box 1. Since the amount in Boxes 3 and 5 just show the amount of the wage taxed for their categories (not the wages from before the certification, like Box 1).  What matters is making sure Box 1 "clears," so it is not taxed. 

I was so confused because I saw online some people were saying to input the amount from Box 3/Box 5 and choose "none of it" regarding the wage in Box 1. However, their situation wasn't exactly like mine, so I didn't know what was right.

[RobertB4444]

You've got it.  Good luck!

@de123 

[JohnQT]

Last year my wife was an IHSS Provider for my mother-in-law who was living in our home in CA at the time.  During the CA IHSS Provider sign-up process she elected to have NO taxes withheld on these payments (knowing that there would be no taxes assessed in this situation).  She ultimately received a 2023 W-2 with her mother listed as the Employer and "0.00" in ALL the boxes (except box 14 which shows a small amount of CA-SDI).

So in our case, the advice in the TurboTax Help topic to "Enter the amount reported in box 3 of your W-2 in Box 1" does NOT change anything.  Also the claim in that Help topic that the amount of Medicaid waiver payments "is the same amount reported in boxes 3 and 5 of your W-2" is NOT correct.  She did receive nearly several thousand dollars gross payments (not "0.00") in 2023.  But as I understand it, we still need to enter that payment amount in the "Let's check your Medicaid waiver payments" screen.  The actual W-2 Form in TurboTax has "Additional Wage and Tax Information" with a "Part X - Medicare Waiver Payments" section and the verbiage there looks right to me.  I just hope that TurboTax does the math correctly in our case.

And again, as many have noted in this topic, doing anything here that leaves a "0.00" in box 1 will still prevent you from e-Filing the return.  I'm normally religious about entering data from W-2s "exactly as shown".  But since the TurboTax Help topic specifically instructs to not do that for these payments, then I suppose it probably won't hurt to just change that 0.00 to 1.00 to be able to e-File?  In other words, will the IRS really care?

In any case, just because this "$1 trick" will allow e-Filing, there's no guarantee that it won't trigger a follow-up letter from the IRS, is there?  (Being able to blame TurboTax published advice will be little solace if the IRS comes knocking...)

[Vanessa A]

What problem exactly are you having?  

If you enter your box 3 wages in box 1 and then select Non Taxable Medicaid Waiver payments that qualify as difficulty of care payments then select all of it, does that not allow you to file while still removing the income from your taxable income?

Or is there another issue?

[JohnQT]

Problem #1: Per my previous post, my wife (the IHSS Provider) received a 2023 W-2 with her mother (the IHSS Recipient) listed as the Employer and "0.00" in ALL the boxes (except box 14, which shows a small amount of CA-SDI).  So "enter your box 3 wages in box 1" changes nothing, as it's just shuffling the same "0.00" figure around...

Problem #2: Shuffling "0.00" around won't solve the problem of "0.00 in box 1 means no way to way to e-File".

"Don't include such a W-2 in your return" doesn't seem to be valid advice.  My wife still received IHSS Provider payments and she needs to report that (tax-exempt) income somewhere, no?  And as far as I can tell, that can only be recorded in the TurboTax W-2 form (after selecting the uncommon situation "Nontaxable Medicaid waiver payments that qualify as difficulty of care payments").

(There's also the issue of potential excess SDI payments.  This W-2 does show CA-SDI payments and those figures should be tracked in aggregate, in case a refund is due -- though TurboTax apparently doesn't handle such refund claims.)

[DawnC]

There are no wages to report on her w-2.   You can ask the issuer for a corrected w-2, but her w-2 can't be entered as is.    You can report income in miscellaneous income if needed.   

To report miscellaneous income, search for the phrase other reportable income and use the jump to link, and you can report the income there.     @JohnQT 

[JohnQT]

Well there are "wages" (technically "nontaxable Medicaid waiver payments that qualify as difficulty of care payments"), but I think what you are telling me is that they are "non-reportable"?

Is the advice of not including in your tax return such a W-2 (with "0.00" in box 1, 3, 5, etc.) published anywhere by the IRS?

Note that if I do NOT follow your advice but just fill out the Step-by-Step as prompted, that it does reduce my CA State tax liability by about $160.  Is that really due to a miscalculation on the actual TurboTax W-2 Form?  The Form verbiage seems pretty clear to me...

[JohnQT]

P.S. It's hard to keep up with the convo here when there are significant edits in your replies...

[JohnQT]

Since the relevant TurboTax Help article recommends to just shuffle dollar numbers around between boxes 3 and 1 then it seems to me that that individual W-2 dollar figures are not transmitted via e-File to the IRS, are they?  In which case it probably won't hurt for me to just change that "0.00" in box 1 on this W-2 to "1.00" in order to get past the e-File hurdle.  $1.00 is basically a standard rounding error anyway...

If this causes the IRS to ask questions then I will just refer them to an archived copy of the TurboTax Help article.  But that article really ought to be updated to handle W-2s with "0.00" in ALL the relevant fields, as this is apparently how the State of CA issues them when you instruct them to withhold no taxes.

Also, if flipping numbers around in the TurboTax W-2 forms is truly no big deal, then TurboTax ought to handle the entire issue with "0.00" in box 1 automatically.  In this case just have it automatically enter a nominal "1.00" in box 1, with a ToolTip in the Step-by-Step and Form views to explain why it did that.

Forcing customers to print out reams of paper returns in this case is quite inconvenient and really silly.  When we purchase a product with advertised e-Filing capability that feature ought to work, unless there is a very good reason for it to not work.

[JohnQT]

@DawnC, back to your edited advice to search for "other reportable income"...  I did that and the link took me to "Other Wages Received" with several examples listed:

"Wages earned as a household employee" could actually apply here since that's how the State of CA characterizes an IHSS Provider.  However there is a Note on that page that if you earned $2600 or more from an employer then you must have the employer issue a W-2 (which the State of CA already did, via their IHSS reporting system - but that W-2 doesn't play well with TurboTax).

"Certain nontaxable Medicaid waiver payments not reported on Form W-2 or 1099" looks like an exact fit for the payments my wife received, and the Help on that page even mentions filling this out here to potentially take advantage of Earned Income Credit.

I went ahead and deleted the "ALL 0.00" W-2 that she received for IHSS Provider services and then added her actual payments into this Step-by-Step form.  TurboTax added the dollar amount to a "Wages, Salaries, & Tips Worksheet".  Our State of CA tax liability is basically the same as it was when I had the "ALL 0.00" W-2 entered into TurboTax.

Question: In the "Certain nontaxable Medicaid waiver payments not reported on Form W-2 or 1099" Step-by-Step form, I assume I should only record actual money received, i.e. Net Pay, correct?  (Oddly enough, the State of CA actually withheld Social Security and Medicare taxes on these payments, and then refunded them in 2024...)

[DianeW777]

Question: In the "Certain nontaxable Medicaid waiver payments not reported on Form W-2 or 1099" Step-by-Step form, I assume I should only record actual money received, i.e. Net Pay, correct?  (Oddly enough, the State of CA actually withheld Social Security and Medicare taxes on these payments, and then refunded them in 2024...)

• No, you should enter the gross pay when using the steps in the TurboTax FAQ - How do I enter my tax-exempt Medicaid waiver payments from IHSS in TurboTax?
  • As you indicated the withholding was refunded even if it was in 2024.

@JohnQT 

[JohnQT]

These are Medicaid waiver payments, not "wages".  We specifically requested that the State of CA not withhold taxes.  Instead, they refunded taxes in the following year...

If we report the entire "Gross" figure as "payments" then I assume we will need to report the refunded tax payments next year as something other than "payments".  How exactly will we need to report those refunded taxes next year?

Thanks...

[DianeW777]

No, you should not report the refunded portion next year and the payer should not be sending/issuing any document to you for their refund of the taxes withheld. Since they were refunded they did not pay them to the IRS, for 2023, through their employer reporting forms.

If you get a form next year, keep it with your tax files and do not enter it.

@JohnQT 

[Zozo2]

Hi CatinaT1,

 Thank you for your explanation. I have a W-2 with $0 in box 1. I tried all your steps but still not able to eFile. The error it complain it $0 in box. Any other suggestion?

[AmyC]

You can put $1 in the wages box and the form will go through and should not effect your return.

@Zozo2