February 6, 2017 – Workaround for input of IHSS / Medicaid Waiver Payments

Reporting source: IRS Oakland SPEC

IHSS / MEDICAID WAIVER PAYMENTS (this workaround only applies if taxpayer lived with person they were caring for)
Three steps for federal return:
1) Enter the W2 on the W2 screen (make it match *see exception for CA Return below*)
2) Back out the income on line 21 (negative dollar amount), description Notice 2014-7
3) Enter the wages as Prisoner Income (positive dollar amount) to exclude from EITC

See page D-45 of Publication 4012 (PDF)

CA Return (per FTB):
The preferred method of not granting CA EITC to those whose IHSS income has been backed out of their tax return, is to zero out box 16 on the W2. The CA 3514 is directly connected to box 16. Even if the return shows a zero Fed AGI, it will still calculate a CA EITC credit and place it on line 75 of the 540. If a person had no “earned” income on their return, they are not entitled to the CA EITC.