IHSS Untaxed Income Causes My CA Refund to go UP

Forum|Forum|2 years ago
February 13, 2024
1 reply
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Hello,

Normally I don't enter my W-2 for untaxed IHSS income ($0 in box 1). But every few years I enter it to see if it changes my tax refund. Tax code is complicated and you never know what could be new. As many have suggested I enter $1 for box 1 so I can e-file. I do pay Social Security and Medicare taxers. When I enter the W2 my federal refund doesn't change. However my CA refund goes up by the amount I paid in Social Security and Medicare taxes.

Is this normal? This seems like a bug in Turbo Tax. I'm most likely going to delete the W2.

Thanks

MonikaK1

If you enter a W-2 with $1 in Social Security earnings but Social Security taxes on the entire amount you earned, the program thinks you were overtaxed for Social Security and Medicare.

Go back to the Wages section and edit your W2 entry.

Enter your W2 exactly as it is, even with the 0 in box 1.
The next question is going to ask you to take another look to ensure your entries are correct, select continue.
You will get a screen that looks like this screenshot

Check the box as indicated and follow the prompts.

See this help article for more information including how to include this income for Earned Income Credit.

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MagooGuyAuthor

So I need to clarify. I have entered the form correctly.

Box 1: has $1 so I can e-file. Entering $0 doesn't change the result.

Box 3: Has the amount that was paid to me. The social security tax in box 4 is correct for the amount in box 3.

Box 5: Has the amount that was paid to me. The Medicare tax in box 6 is correct for the amount in box 5.

Box 14: Has the CA-SDI that I paid.

California and local taxes information is all $0

California shouldn't care about the amounts in boxes 4,6,14. I'll get the rest of my return done and then see where it sits. But in the end I'll delete it.

thanks

CatinaT1

Both the IRS and California allow Medicaid Waiver Payments to be included or excluded in the computation of the EIC. I am guessing your refund is going up due to Earned Income Credit.

Tax-Exempt Medicaid Waiver Payments from IHHS

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.

This tax-exempt income can be reported to you differently depending on the State and County you live in. You might receive a W-2, 1099, and no form at all.

See the instructions below for how to report this depending on how the income was reported to you.

If you received a W-2 with $0 in Box 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);
Click on Federal Taxes, and then click on Wages & Income;
Under Wages and Income, click Start; 
Click on Work on my W-2, and enter the information as reported on your W-2.
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.
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.
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:

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, and then click on Wages & Income;
Scroll down to Less Common Income; 
Click on Start next to Miscellaneous Income, 1099-A, 1099-C.
Click on Start next to, Other income not already reported on a Form W-2 or Form 1099;
Answer Yes to Did you receive any other wages?;
Leave blank the box for Wages earned as a household employee and click continue;
Leave blank the box for Sick or disability pay and click continue;
Enter the amount of Medicaid waiver payments on Certain nontaxable Medicaid waiver payments not reported on Form W-2, and click Continue.
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.