Jump to content
ATX Community

IHHS Payments and EIC


BulldogTom

Recommended Posts

HSS payments are earned income for Earned Income Tax Credit

May 16, 2019

The Tax Court has ruled that income that a taxpayer excluded from gross income pursuant to IRS Notice 2014-7, which treats qualified Medicaid waiver payments as excludable as foster care payments, is earned income for the purposes of calculating eligibility under the Earned Income Credit and Additional Child Tax Credit. (Feigh v. Comm. (2019) 152 TC 15)

File amended federal returns for clients who qualify. Although California follows Notice 2014-7, it is unclear if the Tax Court’s decision will impact the California Earned Income Tax Credit because California also requires that the earned income be subject to state withholding. (R&TC §17052(c)(3)(A))

  • Like 1
Link to comment
Share on other sites

Sorry for the bad formatting above.  I am not good at this fancy dancy cut and paste and I don't do links.

So my question is - the income is still excludible under foster care payments but is includible for EIC calculations?   I think that is what this is saying.

I have a couple of amended returns to get processed.

Tom
Modesto, CA

Link to comment
Share on other sites

6 hours ago, BulldogTom said:

So now the question is how to make this happen in the ATX software.   

Any suggestions?

I have not dealt with this issue but it looks to me like you report wages on line 1 to include as earned income and subtract on line 21 to exclude from taxable income.

However,  IRS might revoke notice 2017-7 to eliminate the double tax benefit that they argued against in Feigh v C.

The court firmly held that that the IRS does not have the authority to deny EIC to the payments IRS excluded under Notice 2017-7.  The judge was critical of the IRS in it's drafting of Notice 2017-7.  The judge stated that Notice 2017-7 contradicted previous court ruling.

While it appears to me that the IRS has no grounds to appeal the Feigh case, it may very well follow the advice hinted by the court and rethink Notice 2017-7.  As the court clearly pointed out the IRS created the double tax advantage and it would be up the IRS fix it.

As far as amending returns to pick up EIC while excluding the payments, as of today that appears to be the law of the land.

Link to comment
Share on other sites

32 minutes ago, mwrightea said:

If the DHHS in your State issues a W-2 there is a Medicaid waiver option in Box 14 of the W-2.  Once that is selected those wages will appear on Line 7 Earned Income on the EIC schedule of the 1040. 

Thanks.   That is something new to me.

Tom
Modesto, CA

Link to comment
Share on other sites

  • 1 month later...

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...