Medicaid Waiver Payments - Some wages on W2 box 1 and the rest are not. How to enter this?

[megank1]

I work as a IHSS provider and I live with one recipient. I received my W2 and box 1 shows $1,000, Box 3 and 5 shows $10,000. Before tax year 2022, I can combine all amount and input on 1040 box 1 and subtract the whole amount on Schedule 1 Other Income. In 2022 tax year, form 1040 has box 1a and 1d. Can I still combine the income from W2 box 1 and the income that is not showing on W2 and enter total($10,000) on 2022 form 1040 box 1a? 

[ShirlynW]

Please clarify what you mean by " Before tax year 2022"? If you received a W2 for a prior year, you cannot include that income in your 2022 tax return.

[megank1]

Hi ShirlynW

When I said "Before tax year 2022", I mean the tax forms 1040 before 2022. This year the tax form 1040 has 1a to 1z. Last year 2021, I could combine all Medicaid Waiver Payments on 1040 box 1. This year 2022 there is 1a and 1d for the Medicaid Waiver Payments. I received partial MWP wages on W2 box 1 and the other half MWP is not on W2. I like to know can I still combine "ALL" W2 and not on W2 income and enter on 2022 1040 box 1a?

[DawnC]

I am assuming you want to count all of your wages for the Earned Income Credit?   Enter your W-2 as it appears.   Then follow the steps below:

1. Go to Personal Income/Wages and Income
2. Scroll down to Less Common Income
3. Click Start/Update next to Miscellaneous Income, 1099-A, 1099-C
4. Click Start/Update next to Other Income not already reported on a Form W-2 or Form 1099
5. Answer Yes to Did you receive any other wages?
6. Click Continue on the Household Employee page (doesn't apply here)
7. Click Continue on the Sick or Disability page (doesn't apply here)
8. On the next screen, enter the amount of your Medicaid waiver payments (9,000?)
9. Click No on the last screen - you are done!

This will add the wages to your taxable income (1d) for the purposes of claiming the EIC and then TurboTax automatically subtracts them on Line 8 of Form 1040 (Schedule 1, Line 8s).

Medicaid Waiver Payments are not taxable but can be included for EIC.   Full instructions and an explanation are provided in that link.  

[megank1]

There is one thing I am still confused about the "Medicaid Waiver Payments".  I have $1,000 on W2 Box 1 and box 3 and 5 has $10,000. That means I have $9,000 nontaxable income not on W2 box 1.  The IRS says either "all or none" to include or not include. This is what I am confused. When IRS says include all or none, is that mean that all $9,000 not on W2 or all including that $1,000 on W2 box 1?

Here is another question I like to know. Can I file a tax return that I want that $1,000 to be taxable like normal W2. And the other $9,000 not on W2 box 1 use for earned income credit?

[DawnC]

It means, you may choose to include all, but not part, of these payments (payments considered difficulty of care payments - $9K) in earned income for determining the EIC.  See Q&A #s 8 and 9.   The $1K on your W-2 is not being treated as difficulty of care payments, only the $9K that your employer excluded is.   It means you can't say I want to exclude only $5K of the $9K, you have to include or exclude the full $9K of the difficulty of care payments.   The $1K that wasn't excluded is not being treated as a difficulty of care payment, only the difference between Box 1 and Box 3&5.  

If you follow the instructions I gave above, that is exactly how your income will be treated.   All $10K will qualify for the EIC, but only $1,000 will be taxable.   The amounts on Line 1a and 1d qualify for EIC.   But on LIne 8, the 9K you added to LIne 1d is subtracted so you don't pay tax on it.   And you are excluding ALL of the difficulty of care payments, also, so you are following the IRS.  

[megank1]

Thank you.