BulldogTom Posted February 16, 2022 Report Share Posted February 16, 2022 This is an ATX entry question. T/P sole income is IHSS payments for the care of disabled spouse. The payer has stopped providing W2s because the income is non-taxable. The Tax Court says the payments qualify for EITC earnings even though they are non-taxable. How do I enter the income into ATX without a W2? Last year, when we had a W2 from the payer, it did not matter since the income was wiped out by the standard deduction. Now I am up a creek on how to put this into the software. I have been looking all over the EITC form for a way to show this, but I can't find a way. I thought about a substitute W2, but I am not sure that will fly through the e-file system. Any help appreciated. Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
Pacun Posted February 16, 2022 Report Share Posted February 16, 2022 How much money are we talking about? If it is less than the standard deduction, I would use a 1099-NEC and redirect it to "line 7" (old school). I would be prepared to explain to the IRS if they question it. Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 16, 2022 Report Share Posted February 16, 2022 You do realize that Tax Court opinions only apply to the specific case involved and do not establish any legal tax precedence. Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 16, 2022 Report Share Posted February 16, 2022 The agency (usually county) should have allowed the provider to self certify the amount is not taxable. This allows the agency not to send an unneeded 1099 or W2. Receiving a 1099 or W2 - when it is to be ignored - can cause headaches. I cannot help with ATX, since I do not use it. The software I use for my personal return asked if we had any such amount we wanted to report, and if it would have benefited, would have handled it appropriately. This treatment is not just a single tax case ruling, it is policy (or whatever the proper term is) for all similar situations. IRS Notice 2014-7. 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 16, 2022 Report Share Posted February 16, 2022 The question is not whether the care payments are excludable which is what 2014 - 7 addresses, but whether excludable IHSS Payments can be used to qualify for EITC Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 16, 2022 Author Report Share Posted February 16, 2022 14 minutes ago, cbslee said: The question is not whether the care payments are excludable which is what 2014 - 7 addresses, but whether excludable IHSS Payments can be used to qualify for EITC That is not the question. That issue is settled policy. It can be used to EITC. The question is how to make the software follow the policy. Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 16, 2022 Report Share Posted February 16, 2022 10 minutes ago, cbslee said: The question is not whether the care payments are excludable which is what 2014 - 7 addresses, but whether excludable IHSS Payments can be used to qualify for EITC The IRS has already made it clear the amount can be included for income based items, such as EIC and ACTC, yet excluded from taxable income. Tom was, to me, asking how to make it happen in ATX. There are many search results showing how it is handled in other software, and many IRS references showing it is allowable (the TP can elect to show any amount from zero to full amount received, IIRC). 2 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 16, 2022 Author Report Share Posted February 16, 2022 2 minutes ago, Medlin Software said: Tom was, to me, asking how to make it happen in ATX. There are many search results showing how it is handled in other software, and many IRS references showing it is allowable (the TP can elect to show any amount from zero to full amount received, IIRC). Exactly. Everything I think of will not be able to be matched by the IRS and will look like EITC fraud to the IRS (properly so - in my opinion). If anyone could just put an amount in for income with nothing for the IRS to match to from a third party payer, there would be fraud like the IRS has never seen before. I can't find a good way to do this that will not involve IRS rejection and appeals. Without the W2, I see no other course of action that the IRS could take (again - justifiably so). However, my client is entitled to this tax credit (both Federal and CA). I need to advocate for them. Tom Longview, TX 2 Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 16, 2022 Report Share Posted February 16, 2022 The examples I saw, showed a note on the line where the item is entered as non-taxable income. The note referenced the IRS bulletin. I just did a Google search for Medicare waiver payments and went through a few of the items returned by the search. It seems there are other software vendors to provide instructions, and I saw one which was some sort of IRS volunteer information which showed how to report The IRS not having a match of the amount does not seem to be an issue. There are many times when someone has income to report where there is no 1099 or other form. An example would be a landscaper who may not get a 1099 from every single client they have. They may not be using a credit card processor so they would not get a 1099 from the credit card processor either. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 16, 2022 Report Share Posted February 16, 2022 31 minutes ago, BulldogTom said: Exactly. Everything I think of will not be able to be matched by the IRS and will look like EITC fraud to the IRS (properly so - in my opinion). If anyone could just put an amount in for income with nothing for the IRS to match to from a third party payer, there would be fraud like the IRS has never seen before. I can't find a good way to do this that will not involve IRS rejection and appeals. Without the W2, I see no other course of action that the IRS could take (again - justifiably so). However, my client is entitled to this tax credit (both Federal and CA). I need to advocate for them. Tom Longview, TX Tom, 1040 instructions say to report this on 1040, line 1 and back it out on Sch 1, line 8z. That way the income allows the EIC but isn't taxed. Part of line 1 instructions: Quote Enter the total of your wages, salaries, tips, etc. If a joint return, also include your spouse's income. For most people, the amount to enter on this line should be shown in box 1 of their Form(s) W-2. But the following types of income must also be included in the total on line 1. Any Medicaid waiver payments you received that you choose to include in earned income for purposes of claiming a credit or other tax benefit, even if you didn’t receive a Form W-2 reporting these payments. See the instructions for Schedule 1, line 8z. Sch 1, line 8z: Quote Medicaid waiver payments to care provider. Certain Medicaid waiver payments you received for caring for someone living in your home with you may be nontaxable. If these payments were reported to you in box 1 of Form(s) W-2, include the amount on Form 1040 or 1040-SR, line 1. Also include on line 1 any Medicaid waiver payments you received that you choose to include in earned income for purposes of claiming a credit or other tax benefit, even if you did not receive a Form W-2 reporting these payments. On line 8z, subtract the nontaxable amount of the payments from any income on line 8z and enter the result. If the result is less than zero, enter it in parentheses. Enter “Notice 2014-7” and the nontaxable amount on line 8z. For more information about these payments, see Pub. 525. Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 16, 2022 Report Share Posted February 16, 2022 For documentation of the amount received, get a copy of the last pay stub for the year. For those who are following, even though the agency may not issue. W2 or 1099, there will still be pay stubs. The provider will likely already be keeping and using their stubs to show income for loans and other similar reasons, even though it is not taxable. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 16, 2022 Report Share Posted February 16, 2022 Tom, those same instructions that I quoted in my post above were in the 1040 last year too. Doesn't ATX have an input for income to flow to line 1 without entering in the W2 area? I searched this site for "IHSS" and found that you asked virtually the same question in 2021, and one of your own replies in that topic was that ATX was aware of its errors in handling and was going to fix it. Was that ever resolved? Have you gone into the 2020 software to see your input? Not being wise, trying to help you. Here's the topic from last year - see the 4th post down, made by you. Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 16, 2022 Author Report Share Posted February 16, 2022 ATX EIC form starts with AGI. If you put the income on Line 1 (which you can do without a W2) and then back it out on line 8 (which you can do in ATX), the EIC form shows the AGI as $0, which then calculates no EITC. I have messed around with the ATX EIC form and I cannot figure out how to get around their programing to allow the calculation. I was hoping that I was missing something in the input that someone else knows about. Last year, I just left the W2 income in the return as it resulted in no tax, in that the Std Deduction wiped it out. That was my work around. I think this will require another call to ATX support. Thanks for chiming in. Appreciate you. Tom Longview, TX Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 16, 2022 Report Share Posted February 16, 2022 1 hour ago, BulldogTom said: That is not the question. That issue is settled policy. It can be used to EITC. The question is how to make the software follow the policy. Tom Longview, TX Where is your cite for this being settled policy? Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 16, 2022 Report Share Posted February 16, 2022 5 minutes ago, cbslee said: Where is your cite for this being settled policy? IRS Notice 2014-7, Q&A number 9 says this: (Question 10 from that notice deals with amended returns for this issue.) Quote Q9. I received payments described in Notice 2014-7 that are treated as difficulty of care payments under § 131. May I choose to include these payments in earned income for purposes of the earned income credit (EIC) or the additional child tax credit (ACTC)? (Added May 8, 2020. A9. Yes, for open tax years, you may choose to include all, but not part, of these payments in earned income for determining the EIC or the ACTC, if these payments are otherwise earned income (wages or income from self-employment). 1 Quote Link to comment Share on other sites More sharing options...
Lee B Posted February 16, 2022 Report Share Posted February 16, 2022 I apologize for being annoying and difficult! 1 Quote Link to comment Share on other sites More sharing options...
Medlin Software, Dennis Posted February 16, 2022 Report Share Posted February 16, 2022 Uncommon items can be tricky. Especially in this case of the TP maybe receiving a W2, maybe a 1099, or more likely, nothing at all (other than their pay stubs). This is one of those legal double dips (not taxable income, but can be used to qualify for credits, or at least to show more income for loan applications). Considering the amount per hour is not a livable wage, and it helps the government not have to pay for assisted living in a facility, this double dip is not unreasonable at all. Now, if all states would allow direct family members to be the provider, it would get closer to making sense . Quote Link to comment Share on other sites More sharing options...
Chris R Posted February 16, 2022 Report Share Posted February 16, 2022 I just spoke to support on this very issue and they said I will just have to override the 3514 and the Schedule EIC to make this work for my IHSS clients. Dumb but that is what it is according to ATX support. Maybe add an 8275 with explanation of where the income came from? 1 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted February 16, 2022 Report Share Posted February 16, 2022 30 minutes ago, cbslee said: annoying and difficult! Wait, that's my job! 1 3 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 16, 2022 Author Report Share Posted February 16, 2022 1 hour ago, Chris R said: I just spoke to support on this very issue and they said I will just have to override the 3514 and the Schedule EIC to make this work for my IHSS clients. Dumb but that is what it is according to ATX support. Maybe add an 8275 with explanation of where the income came from? Thanks for that info Chris. Saved me a call to support. Tom Longview, TX 2 Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted November 2, 2022 Author Report Share Posted November 2, 2022 Follow up - IRS denied the EITC claim. We appealed. Just found out today that the client received their refund. If any of you find yourself in this situation, I have attached IRB 2020-14 which says the IRS will follow Feigh decision. I attached the IRB to my response letter when we disagreed with the IRS. Pretty sure that helped get this resolved. Tom Longview, TX IRB 2020-14 Feigh IHHS.pdfIRB 2020-14 Feigh IHHS.pdf 3 Quote Link to comment Share on other sites More sharing options...
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