IRS didn't allow Medicaid waiver for EIC

Forum|Forum|2 months ago
April 22, 2026
1 reply
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My client just received a letter stating that they had changed the return because they didn't allow the amount claimed as Earned Income credit because their earned income or adjusted gross income is more than the amount allowed to qualify for the credit.

My client W-2 had $0 in box 1 and Code II with $61881.57 in box 12 and that amount went to the 1040 box 1d and also as negative in box 8 (as non-taxable Medicaid payment). They also had other income for $53,321

I sent them to their local IRS office and their solution (after half day spent there) was to file a 1040-X and remove both entries. Pretty much ignore the W-2.

Has anyone had this issue before?

Thank you

ProSeries Professional

Best answer by Just-Lisa-Now-

Yes. I set the 61k to be excluded.

I forgot to mention more details:

MFJ with 2 children that qualify for EIC.

The 53k are taxpayer income.
The 61k are the in-home support that wife receives to care for one of the children (child has a disability)

@TaxGuyBill You know how this works better than I do, I dont have any clients with Medicaid Waiver income that also qualify for EITC. I dont even bother to enter a W2 with a zero in Box 1.

I know you can choose to include it it qualifies you for EITC, does it work against you if your other income qualifies you for EITC?