W-2 Difficulty of Care payments
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Level 2

W-2 Difficulty of Care payments

I just received my W2 for 2020. I didnt fill out the paperwork to claim exempt until this past October. (although all my income was from this difficulty of care) My W2 is showing in box 1 the amount I was paid before the paperwork went through (Apprx $33k). Box 2 shows my taxes taken out before the paperwork went through. (apprx $2k) Then box 16 shows the actual amount I made all year before & after paperwork went through. (apprx $41k). My question is, can I use this W2 the way it is or am I supposed to have one showing something different? I didnt expect anything to show up in box 1.  It is a bit confusing since it was switched in the middle of a tax year. I am hoping this W2 can be used as is, because calling the payroll dept for the IHSS in the state of Florida is absolutely insane.  From what I have understood all of the income should be tax exempt for the year. Any help would be appreciated. Thanks

3 Replies
Employee Tax Expert

W-2 Difficulty of Care payments

You can use the W2 as it is, but it is best to get a corrected W2 if possible.  If you cannot get the Form W2 corrected, here is a link with the steps to enter in TurboTax.  

 

 

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Level 2

W-2 Difficulty of Care payments

It would be like climbing up Mount Everest trying to get a corrected W2 from them, so I am trying to file with the one I have. I spent 90 minutes on the phone with IRS. Unfortunately they were not any help. I found some advice on Tax Slayer that I think might be useful to my situation but not sure if the TurboTax program would allow mw to file it this way. I prefer TT as I have used them every year for my previous taxes.  

I believe the first section below would be for the actual W2 that I received showing the $33k made in Difficulty of Care income before my paperwork went through and they stopped taking out taxes. Then the second section would allow me to enter the remaining $7980 that I know I made in Difficulty of care income the last 3 months of the year .  I just want to make sure I am able to claim the full amount that I made under difficulty of care for EIC. I understand that it will lower my EIC payment but I was informed if you claim any difficulty of care payments for EIC it must be the full amount. That is why I am so intent on filing this correctly so it doesnt overpay me in EIC and I get in trouble later on.                                           

 

 Per Taxslayer:

If the Medicaid Waiver Payment is on the W-2 (included in Box 1), select the box at the top of the screen indicating the W-2 includes Medicaid Waiver Payments. Enter the information to match your W-2 form. 

  • If you want to include the Medicaid Waiver Payment when figuring Earned Income Tax Credit:
    • Enter the amount of the Medicaid Waiver Payments in the W-2 entry field
    • Check the box for "This income was reported as income on a Form W-2 or Form 1099-Misc"
    • Check the box for "I want to include this income when calculating Earned Income Tax Credit"
    •  
    • Medicaid Waiver Payment not reported to taxpayer on any form:

      If the taxpayer received a Medicaid Wavier Payment but the payment was not reported on a W-2 or a 1099-Misc form, the payment is recorded as follows:

      • Federal Section 
      • Income
      • Less Common Income
      • Medicaid Waiver Payments

      If you want to include the Medicaid Waiver Payment when figuring the Earned Income Tax Credit:

      • Enter the amount of the Medicaid Waiver Payments in the entry field
      • Do not check the box for "This income was reported as income on a Form W-2 or Form 1099-Misc"
      • Check the box for "I want to include this income when calculating Earned Income Tax Credit" DOES THE ABOVE LOOK LIKE IT WOULD WORK UNDER TURBOTAX IF I PURCHASE THEIR PRODUCT TO DO MY TAXES THIS WAY? THANKS
Employee Tax Expert

W-2 Difficulty of Care payments

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);
  1. Click on Federal Taxes at the top of the screen;
  2. At the bottom of Your Income box pick the option in blue to help me add other income, then jump to full list;
  3. Scroll down the page to the last section titled: Less common Income and click show more;
  4. Select start or update next to the last topic titled Miscellaneous Income, 1099-A, 1099-C;
  5. Scroll down to the last option titled Other reportable income and select start or edit;
  6. When it asks, "Any other reportable income?" say yes then you will make two entries:
  7. 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.
  8. 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.

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