Should I be exempted from taxes, I am earning from IHSS and the recipient lives with me.

[chitamjoaquin]

I have an IHSS care services waiver personal. live-in self- certfication for IRS federal taz wagws referral

[MaryK1 · Accepted solution]

Yes, TurboTax can exempt income under Notice 2014-7 per the IRS instructions.  Under this Notice certain Medicaid waiver payments are treated as difficulty-of-care payments when received by an individual care provider for care of an eligible individual (whether related or unrelated) living in their home. If you are not sure if your payments qualify for the waiver then ask the payer for confirmation.

Medicaid Waiver Payments for In-Home support services are excludable from gross income and should not be included in your earned income.

If these payments are paid to you in box 1 of form W-2 (they should not), first try to get a corrected Form W-2 from the payer. If you cannot get a corrected Form W-2, follow these steps:

• Do not enter the W-2 in the Wages & Salaries topic.
  Instead enter it as Other Reportable Income under the Miscellaneous Income section. 
• To get to this section you will click on Federal Taxes, Wages & Income, then Less Common Income, and start next to the last option for Miscellaneous Income, 1099-A, 1099-C. 
• Next click start next to the last option for Other Reportable Income click yes and follow the instructions below. 
• You will make two entries:

1. Your first entry description would be W-2 EIN # (enter EIN number from W-2) Box 1 Medicaid Waiver Payments, and enter the Box 1 amount as a positive number.
2. Next you click "Add Another Miscellaneous Income Item," and enter this description: IRS Notice 2014-7 excludable income and enter the W-2 Box 1 amount as a Negative (-) number. This both shows and explains removing the W-2 income, placing a zero on Line 21 of your Form 1040.

If your W-2 has federal or state taxes withheld, you can enter these amounts in the Deductions & Credits section under Estimates and Other Taxes Paid, or Other Income Taxes Paid as Withholding not already entered on W-2.

For more information, refer to IRS Notice 2014–7, 20144 I.R.B. 445 and the IRS FAQs.

Answered by TurboTaxHols

[ultraburr]

I followed this exact advice on TurboTax last year and it got me a Notice CP2000 from the IRS that I had failed to report income. They charged me $6,637 including a penalty for "substantial understatement of tax." 

Seems like the solution on this post is better:  https://ttlc.intuit.com/community/taxes/discussion/if-you-are-caring-for-your-son-in-your-home-under...

"

If you are caring for your son in your home under a Medicaid Waiver Program, you should not be getting a W-2 or 1099 for this income, as Medicaid Waiver Payments are generally non-taxable income.  Your first step should be to contact your agency and refer them to IRS Notice 2014-7 .  Ask them to correct the W-2, if necessary, to show zero wages.

If they refuse, you will have to report the amount on this W-2 as income, because it's being reported to the IRS.  Then you will make a second entry to zero out the income reported in Box 1 of the W-2 referencing the IRS Notice 2014-7.  

To enter the exemption from income:

• In your Federal Return, choose the Wages & Income tab.
• Tab through or Scroll down to Less Common Income and Show more
• Start/Revisit Miscellaneous Income and choose Other reportable income 
• Say Yes to continue to the screen "Other Taxable Income". Enter the description "Notice 2014-7" as the description and the amount as a negative number. 

A corresponding negative amount will be entered, making your taxable income from this W-2 effectively zero.  "