W2 with box 14 listed as 2014-7

[llr1980]

I take care of my mother in law who lives with us. I get a little bit of money from Medicaid for those services started in June 2019. Come September her insurance changed company to a new company to handle that. I received 2 w2's. One from each company. 1 listed box 1 as 0 and marked 14 has 2014-7. The other company has Box 1 with wages, box 2 is blank and box 14 is blank. What are my choices? I called to get a correct w2 but its been the run around and sending me to voicemail.  I want to be accurate and correct. 

[BarbaraW22]

Per IRS Notice 2014-7, payments from a state Medicaid Home and Community-Based Services program are considered "difficulty of care" payments and are specifically excluded from gross income for income tax purposes. Please see this IRS article for more information. 

For the W-2 with 0 in box 1, if there are no amounts reported in any of the boxes except box 14, you do not need to report this on your tax return. However, you can choose to include Medicaid Waiver Payments as Wages on line 1 of Form 1040 (even if not reported on a W-2) in order to claim the earned income tax credit. In a recent court case, it was ruled that Medicaid Waiver Payments are considered "earned income" for purposes of calculating the earned income tax credit. Please see below for how to report this in TurboTax.

For the W-2 with an amount reported in box 1, please follow the steps below to enter it on your tax return. You will enter it as wages and then enter an adjustment on Schedule 1, line 8 so the payments are not included in taxable income. 

1. Log into TurboTax and click on any topic to continue
2. Click on Federal from the menu on the left-hand side and then click on Wages & Income at the top
3. Click Edit/Add next to Job (W-2) and then click on Add a W-2
4. If you received a W-2 for your Medicaid Waiver Payments enter the information as reported on your W-2. Enter the amount you received for Medicaid Waiver Payments in Box 1 (even if this amount is not reported in box 1 of your W-2.) If you did not receive a W-2, per IRS Form 1040 Instructions, you may still enter the amount of Medicaid Waiver Payments in Box 1 for the purpose of claiming a credit.
5. Continue through the screens until you get back to "Wages and Income" section and then scroll down to Less Common Income and click on Show More
6. Click on Start or Revisit next to Miscellaneous Income and then click on Start next to Other Reportable Income and select "Yes"
7. In the "Description" section, enter "IRS Notice 2014-7 excludable income" and in the "Amount" section, enter the W-2 box 1 amount (or amount of Medicaid Waiver Payments) as a negative (-) number

NOTE: This will both show the W-2 on your return and explain why it is not taxable. 

[Edited 02/11/20 | 6:15pm PST]

[ccsail13]

Does this work on the free version?    If so can you explain why it keeps asking me to upgrade?

[JamesG1]

Workarounds to report 2014-7 'difficulty of care' payments generally involve entering one or more entries to Schedule 1 Additional Income and Adjustments to Income.

This comparison of TurboTax Online versions shows that Schedule 1 (see down the left side of the screen) is not available in the Free Edition.

This is why the software is recommending that you upgrade.

Are you showing income in box 1 of the W-2?  Are you hoping to qualify for the Earned Income Credit by reporting this income?