2021 Medicaid Waiver payments affecting EITC

Forum|Forum|3 years ago
January 31, 2023
3 replies
18 views

Client got a late 2021 W2 for taking care of live in relative as part of a Medicaid Waiver Program.

She made over 20k - box 3&5, but only $683 in shows in box 1 (they corrected it the first month), so I add the W2 with $683, then back it out on Other Income, but that $683 is still adding to earned income and reducing her EITC by $99.

Cant we choose NOT to use that earned income for EITC purposes?

Im digging through the EITC worksheet, but Im not finding a place for this. @TaxGuyBill youre really good at this stuff, where should I be looking...do I have to force it through somewhere?

Or do we wait for the IRS letter and then explain that its excludable income?

ProSeries Professional

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Best answer by TaxGuyBill

@Skylane wrote:

Only 683 of the 20K earnings is taxable. If it causes loss of $99 EITC benefit, then that's what it does......

IRS Notice 2014-7 says that certain Medicaid Waiver payments are not taxable. Further IRS direction says to back it out if the W-2 shows it. The IRS also now says you can choose whether you want that income to apply for the EIC calculation or not.

Skylane

Intuit Community Champion

Lisa,

Follow the W2.

Only 683 of the 20K earnings is taxable. If it causes loss of $99 EITC benefit, then that's what it does......

The box 1 earned income is not excludable from Line 1a (used to be line 7) or EITC. (but the 20K-683 = $19,317 is... that's how they built this Medicaid program...

If at first you don’t succeed…..find a workaround

T

TaxGuyBillAnswer

Level 15

@Skylane wrote:

Only 683 of the 20K earnings is taxable. If it causes loss of $99 EITC benefit, then that's what it does......

IRS Notice 2014-7 says that certain Medicaid Waiver payments are not taxable. Further IRS direction says to back it out if the W-2 shows it. The IRS also now says you can choose whether you want that income to apply for the EIC calculation or not.

Skylane

Intuit Community Champion

Thanks BILL… live and learn…

If at first you don’t succeed…..find a workaround

T

TaxGuyBill

Level 15

For 2021, I think I would enter it on line 6 of the EIC Worksheet as a negative number. That should correct the amount for EIC. The other option is to check the box saying it was prison/inmate income.

I'm not sure, but the taxpayer may still get an IRS notice about it.

For 2022, the W-2 worksheet has a new line "K" that I suspect will work and automatically back it out. But I haven't tinkered with it much yet.

Just-Lisa-Now-

Author

Intuit Community Champion

I saw the new checkboxes in 2022. I'll check out Line 6, thanks!

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪

G

Galt Tax Guy

Level 2

Follow up question.

Amended new client for 2021 & 2022. IHSS was NOT backed out by prior preparer.

2022 Software allows taxpayer to choose to include ALL, SOME or NONE of the IHSS payment as earned income for EIC calcs. NB: The IHSS was her SOLE income. I included enough of the IHSS (for EIC prposes only) to max out her EIC.

Could not find that option for 2021? Was that partial inclusion option avail for 2021