W-2 2024 has $0 in box 1. Only box 12a has $$$ with code II

[Kurly27]

I have been an in-home IHSS provider for my son who is now 8 years old. I always received a W-2 with wages in box 1. This is the first time in my W-2 I have $0 in all boxes except box 12a. I have always claimed earned income credit and child tax credit. This is why my concern. I do have dependents but don't know if I will be able to file or not. 

[RobertB4444]

Box 12 code ii represents "Medicaid waiver payments excluded from gross income".  So the payments that you received do not have to be included in your taxable income.  However, you can choose to include these amounts as earned income in order to qualify for the earned income credit and the additional child tax credit.

When filling out your tax return enter your W2 exactly as you received it.  Then, copy the number from box 12 into box 1.  That will allow you to treat the amount from box 12 as earned income.  

Here is the IRS article on payments like yours.

This is the part that covers your issue-

Q9. I received payments described in Notice 2014-7 that are treated as difficulty of care payments under Section 131. May I choose to include these payments in earned income for purposes of the Earned Income Credit (EIC) or the additional Child Tax Credit (ACTC)? (added May 8, 2020)

A9. Yes, for open tax years, you may choose to include all, but not part, of these payments in earned income for determining the EIC or the ACTC, if these payments are otherwise earned income (wages or income from self-employment).

@Kurly27 

[Kurly27]

Thank you so much for your quick response. Is this something I can do in Turbo Tax with a professional guiding me? If so what is the pricing? Would this return be qualified to be e-filed or would it have to be mailed? 

[Kurly27]

By adding the $$$ amount into box 1, would box 12a become $0?

[CatinaT1]

You can enter this yourself. You want to enter the W2 exactly as it is issued.

TurboTax can exempt income under Notice 2014-7 per the IRS instructions for Medicaid Waiver payments from IHHS. 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. Additionally, you can choose to use this income to calculate Earned Income Credit. Regardless, the income will remain non-taxable.     

If you received a W-2 with $0 in Box 1:  

1. Sign in to TurboTax Online, click Continue to 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, and then click on Wages & Income;     
3. Under Wages and Income, click Start;      
4. Click on Work on my W-2, and enter the information as reported on your W-2.     
5. After entering all your W-2s, you will see the screen, Let’s check for uncommon situations. Next to Nontaxable Medicaid waiver payments, check the box.  
6. You will enter the amount of Medicaid Waiver Payments into the box asking for the total amount of difficulty of care payment you received from IHHS. This will be the same amount reported in Boxes 3 and 5 of your W-2.  
7. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

If you received a 1099 or no form:  

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, and then click on Wages & Income;     
3. Scroll down to Less Common Income;       
4. Click on Start next to Miscellaneous Income, 1099-A, 1099-C.  
5. Click on Start next to, Other income not already reported on a Form W-2 or Form 1099;      
6. Answer Yes to Did you receive any other wages?;      
7. Leave blank the box for Wages earned as a household employee and click continue;  
8. Leave blank the box for Sick or disability pay and click continue;       
9. Enter the amount of Medicaid waiver payments on Certain nontaxable Medicaid waiver payments not reported on Form W-2, and click Continue.  
10. When you get to the Earned Income Credit section under the  Deductions and Credits portion of your return, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.  

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