W2 2014-4 excluded income

[CSG60]

My W2 has 0 in box 1 and my full wages and taxes paid in boxes 3, 4, 5 & 6. I have a valid SOC 2298 showing this is exempt per Medicaid Notice 2014-4.  My employer says they cant reissue a W2 with my wages in box 1 s it is correct due to these forms. However, if box 1 is zero I do not get to claim EIC. I was advised to put wages into box one anyway and then claim EIC.  Is this sound advice? I don't want to get into ay trouble but I badly need the credit if I am eligible and it appears I am. I was last year and got it.  Please advise if it is legit to put my wages in box one even if IRS has the copy with them as zero and if so, what else do I need to do? 

[MonikaK1]

Since the wages are exempt from Federal income following Internal Revenue Service Notice 2014-7, but can qualify for Earned Income Credit, and your W-2 has "0" in box 1, you can enter "0" (zero) as the amount of the wages in Box 1 when you enter your W-2 in TurboTax. After you enter the W-2, you will see a screen (see screenshot) where you can mark that the W-2 includes nontaxable Medicaid Waiver Payments.   

Mark that box and answer the questions on the following pages. 

1. Next, you will be asked to enter the total amount of difficulty of care payment you received. Enter the amount here.
2. Go to the Deductions and Credits tab and go to Earned Income Credit.
3. Go through the eligibility questions, and then you will get to a screen that says: Let's check if you can get a bigger credit. It will look like this:

 

Check the box indicating that you DO want to include your payments for the calculation of the credit.

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

 [Edited 03/17/23| 10:04am PST] 

@CSG60 (edited) 

[CSG60]

OK I did that and it says I am not eligible for the credit. Makes no sense. If they aren't counting my IHSS income (~$25K) as income and the only other income I have is royalties from streaming on Twitch ($1,257) then logically the  Twitch 1099-Misc royalties from streaming on Twitch should be my only income and qualify me for the EIC. Isn't this correct?

[DawnC]

Instead of making the additional entry in the Less Common Income section, just note that the W-2 box 1 amount is Medicare Waiver Payments when you enter the W-2.   You have most likely doubled up your income and therefore are not qualified for the Earned Income Credit.   Delete the entry you made in the Less Common Income, Miscellaneous section.   Then go and edit your W-2.   After you enter the W-2 you get a screen where you can mark that the W-2 includes nontaxable Medicaid Waiver Payments.   Mark that box and answer the questions on the following pages.   Then go through the Earned Income Credit section again.  

[CSG60]

I'm totally lost. Still. I don't see a duplicate entry for my IHSS income on the forms. Is there a maximum allowable AGI for taxpayers filing as single with no dependents over the age of 25? Could that be it? I believe I qualify but no matter what I do TT is not allowing it. This is SO confusing this year! Much worse than any other year and I have used TT for over 10 years.

[CatinaT1]

I see you have been given conflicting information, so let's start over. The entry for this income has changed this year.

What have you entered at this point? You do not need to enter anything in Less Common Income as stated first. Everything will be entered in the W2 area.

If you entered something in the Less Common Income area, that needs to be deleted. 

Then, let's go back and edit your W2 entry. 

1. You are going to enter your W2 exactly as it is, even with the 0 in box 1.
2. The next question is going to ask you to take another look to ensure your entries are correct, select continue.
3. You will get a screen that looks like the screenshot DawnC posted above regarding Uncommon Situation. You will select the box for Nontaxable Medicaid Waiver Payments.
4. Next, you will be asked to enter the total amount of difficulty of care payment you received. Enter the amount here.
5. Go to the Deductions and Credits tab and go to Earned Income Credit.
6. Go through the eligibility questions, and then you will get to a screen that says: Let's check if you can get a bigger credit. It will look like this:

You DO want to include your payments for the calculation of the credit.

This should solve your issues. Let us know if it doesn't.

[CSG60]

I am absolutely losing my mind over this! For the literal 8th!!! time I deleted the whole **&*^%! thing and started fresh with a whole new return from scratch. I did EXACTLY what u suggested, checking line by line as I entered each page. I STILL get "It looks like you do not qualify for this credit" . WHY?????  I am over 25, Lived in the USA my WHOLE life, take care of my Mom in our home and made ~$25k in non taxable income from that, and made $1,200 in royalties from streaming on Twitch. I already fixed and filed the schedule E for that. Everything I look up on the IRS website says I qualify for the credit but bleeping TT says nope and wont let me. WTF am I doing wrong? Please help me. I have been at this for over a week solid every day and over 10 to 12 hrs a day trying to make it right. 

[MarilynG1 · Accepted solution]

Your income can't exceed $16,480 if you're not claiming a qualifying child.   Here's more info on the EIC.

Royalty income doesn't counts as 'earned income'.  You can claim your income from Twitch as 'Self-Employment Income' to be eligible to claim the EIC.

Don't enter your W-2, just save it for your records.

@CSG60 

[CSG60]

OK Thank you. That explains why it keeps denying me. I wasn't aware Royalties don't count as income. So under Schedule E I'm not subject to Business Owner tax. I literally am not one but if I file schedule C it makes me one and the $1200 counts to get the me credit? BTW what would the amount of the EIC be if I did this? Would it offset the cost of all the taxes due as self employed? Is the credit worth the BS of going through all that or should I jsut call it a wash?

[CSG60]

BTW filing as single no dependents

[MarilynG1]

I would estimate your SE Tax to be about $90 (if you claim no expenses) and your EIC about $94 (based on $1200 Earned Income).   

However, you should be claiming your parent as your Dependent (the one you receive Medicaid income for).  Enter their info in the MY INFO section. 

Try entering both your Medicaid income and your Twitch income in the Miscellaneous Income section.  Here's some screenshots:

@CSG60