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