Under IHSS Notice 2014-7 it's supposed to non-taxable if I'm living and working from home. How would I do this if I'm filing my own taxes online?

[jaimebalubal]

I'm an in-home caretaker for my mother, how do I file IHSS W-2 under non-taxable income?

[CatinaT1 · Accepted solution]

TurboTax can exempt income under Notice 2014-7 per the IRS instructions. This Notice provides that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver (Medicaid waiver) program, are difficulty of care payments and excludable as 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. Take the following steps: 

1. Sign in to TurboTax Online, click Continue your return, then pick up where I left off (if you are using TurboTax CD/ Download, then just open your return on your computer);
2. Click on Federal Taxes at the top of the screen;
3. At the bottom of Your Income box pick the option in blue to help me add other income, then jump to full list;
4. Scroll down the page to the last section titled: Less common Income and click show more;
5. Select start or update next to the last topic titled Miscellaneous Income, 1099-A, 1099-C;
6. Scroll down to the last option titled Other reportable income and select start or edit;
7. When it asks, "Any other reportable income?" say yes then you will make two entries:
8. 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.
9. 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 Other Income Taxes 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.

[jaimebalubal]

That worked out! Thank you!

[BAyars]

Thank you so much! Very helpful information! 

[Cyberdragon1970]

What if you don't get w2?

[Critter-3]

If you don't get a W-2 then it is already considered non taxable income ... so there is nothing to report on an income tax return.   Not sure what your question is ???

[kristalvb]

Has filling the W2 income for 2014-7 in miscellaneous income and not as a w2 caused any delays for anyone? My husband's income without my 2014-7 w2 will qualify us for EIC. Not much without it.  This my first year being a provider and filing this way. 

Also, do I need to provide proof. If so, how and what? Will timecards work? My agency is no help. Switching to an agency that does 1099.

[Yaba J Daba]

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

I received the W-2 which shows taxes withheld in boxes 2, 4, and 6. Would I combine federal, Social Security and Medicare tax withheld in the Other Income Taxes as Withholding not already entered on W-2? There are fields for federal and state taxes, but it doesn't break it down into separate types.  

[CatinaT1]

Is this a W2 from IHHS for a state Medicaid Home and Community-Based Services Waiver? Generally you would not have anything in box 2. Can you provide more information? You are posting on an old thread.

[Yaba J Daba]

Yes, it's a standard W-2 from my employer who gets funded through Medicaid to provide Home and Community-Based Services and IHSS. I was told that I could claim tax exemption under IRS Notice 2014-7 now that my child is 18 years old.

[Critter-3]

• If you got an IHSS W-2 and Box 1 is zero, you don't include that W-2 on your tax return. IRS Notice 2014-7 provides that certain payments received by an individual care provider under a state Medicaid Home and Community-Based Services Waiver (Medicaid waiver) program, are difficulty of care payments and excludable as income. 
• If your W-2 has federal or state taxes withheld, you can enter these amounts in the Deductions & Credits section under Other Income Taxes as Withholding not already entered on W-2. You do NOT also include the SS & Medicare taxes in boxes 4 & 6.

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

[Critter-3]

However if box 1 is a non zero amount then ... 

Qualified Medicaid waiver payments on a W-2 show as earned income for EIC

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. These payments are excluded from gross income and shouldn't be included in your earned income.

If these payments are incorrectly paid to you in Box 1 of a W-2, first try to get a corrected W-2 from the payer. If you can't get a corrected W-2....

Don't enter the W-2 in the Wages & Salaries section

Instead, enter them this way:

1. In Income & Expenses, go to the Less Common Income section and select Start next to Miscellaneous Income, 1099-A, 1099-C.
2. On the next screen, select Start next to Other Reportable Income and answer Yes on the next screen.
3. Make two entries on the Other Taxable Income screen:
   1.  Make your first entry description 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 select Add Another Miscellaneous Income Item and enter the 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 8 of your 1040.

[DawnC]

Individual care providers who receive Medicaid waiver payments for the care of eligible individuals in their homes and payers of Medicaid waiver payments have raised several questions not addressed in Notice 2014-7.   The linked questions and answers clarify the notice and provide guidance on the information reporting requirements, and the employment tax requirements for Medicaid waiver payments described in the notice.

How to enter medicaid waiver payments in TurboTax

@christophernewell1970 

[Yaba J Daba]

 I earn wages through an agency under contract with the state. Does it make a difference that the state does not pay me directly?

[DaveF1006]

No, it shouldn't.

@christophernewell1970