How do I enter my tax-exempt Medicaid waiver payments from IHSS in TurboTax?

by TurboTax•208• Updated 1 month ago

Your tax-exempt Medicaid waiver payments from in-home supportive services (IHSS) may be on a W-2, 1099, or no form at all, depending on where you live.

Select the form you received and follow the instructions to enter your payment in TurboTax.

I received a W-2 with dollar amounts in Box 1 and “II” in Box 12

Open or continue your return.
Navigate to the W-2 section:
- TurboTax Online/Mobile: Go to W-2.
- TurboTax Desktop: Search for W-2 and select the Jump to link.
Enter all your W-2 info in the appropriate boxes in TurboTax as they are shown on your form.
TurboTax will include the amount you entered in Box 1 as income on Line 7 of your Form 1040. It'll also include the amount you entered for code “II” in Box 12 as a Subtraction from Income on Schedule 1. Therefore, you won't be taxed on these wages on Form 1040.

I received a W-2 with $0 in Box 1

Open or continue your return.
Navigate to the W-2 section:
- TurboTax Online/Mobile: Go to W-2.
- TurboTax Desktop: Search for w-2 and select the Jump to link.
Enter all your W-2 info as shown on your form, except Box 1.
If you have a number instead of zero in Box 3, enter that number again in Box 1.
On the Let’s check for uncommon situations screen, select the box next to Nontaxable Medicaid waiver payments that qualify as difficulty of care payments.
Enter the amount of Medicaid waiver payments into the difficulty of care payment you received from IHHS box.
- This is the same amount reported in boxes 3 and 5 of your W-2.
- Your payments are nontaxable, but TurboTax uses this number to calculate credits you may qualify for.
When you get to the Earned Income Credit section in Deductions & Credits, we’ll ask if you want to add your Medicaid waiver payment to your income for this credit. You can answer based on what benefits you most.

I received a 1099 or no form

Open or continue your return.
Select Income and Expenses from Tax Home.
Under Less Common Income, select Start or Revisit next to Miscellaneous Income, 1099-A, 1099-C.
Select Start or Revisit next to Other income not already reported on a Form W-2 or Form 1099.
Answer Yes to Did you receive any other wages? and Continue.
Continue through the screens, leaving the boxes blank until you get to the Certain nontaxable Medicaid waiver payments not reported on Form W-2 or 1099 screen.
Enter the amount of Medicaid waiver payments received. If the 1099 shows zero, enter the actual amount received.
Finish entering the rest of your income.
When you get to the Earned Income Credit section in Deductions & Credits, we’ll ask if you want to add your Medicaid waiver payment to your income for this credit. You can answer based on what benefits you most.

These steps will ensure your exempt income is reported accurately while still allowing you to electronically file.

If you don't have any dollar amounts on your W-2, you qualify to exclude the income under IRS Notice 2014-7, and you don't expect to qualify for Earned Income Credit or Additional Child Tax Credit, then you don't need to enter the W-2 at all.