The I need file tax

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luoyining88
luoyining88 Member Newcomer
edited January 4 in Filing my taxes

My husband and me have a lot of Medicaid Waiver Payments from maryland DDA in 2023. We need to clarify this income in tax return. However it is qualified Excludable From Income. Could FreeTaxUSA finish this kind of works in Tax return in 2023?

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  • PamelaP
    PamelaP FreeTaxUSA Agent
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    Hello luoyining88,

    Are you wanting to include those Medicaid Waiver Payments as earned income? If you received Medicaid Waiver Payments, you can choose whether to include that amount in your earned income by selecting “Income” > “Other Income” in our software. There’s a section that specifically asks what Medicaid Waiver Payments you received and if you’d like to include them as earned income or not.

    Choosing to include nontaxable Medicaid waiver payments may increase or decrease your Earned Income Credit if you qualify for it, which could increase your refund or decrease the amount of tax you owe. You may want to try including it as earned income or excluding it to see which option gives you the best tax benefit.Please note, you would also enter the income in the “Income” > “Wages (W-2)” if it was reported to you on a W-2.

    I hope that helps answer your question!

  • luoyining88
    luoyining88 Member Newcomer
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    Thank you for your reply. I found "Medicaid Waiver Payments to Care Provider" but this item means that you want this non taxed income included into your income. If I do not want this non taxed income included my tax income, Could I not claim this income in my tax return? If I must to claim this non taxed income, which section I should put this in your software. Thank you.

  • PamelaP
    PamelaP FreeTaxUSA Agent
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    That section can be a bit confusing, but I can assure you, that is the correct location. I’ll clarify with some examples.

    When you select “Income” > “Other Income” and answer “Yes” to the question “Do you have tax-exempt Medicaid waiver payments (Notice 2014-7)?” more questions will populate below. These questions allow you to treat the income as non-taxable and determine whether you’d like it to be included as earned income.

    For example, if I received $10,000 of qualifying Medicaid waiver payments and entered that information as listed on my W-2 in the “Income” > “Wages (W-2)” section, it would first show as taxable income on my tax return.

    From there, I could select “Income” > “Other Income” and indicate that I have tax exempt Medicaid waiver payments. The software then has a section that says:

    “Enter your nontaxable Medicaid waiver payments from W-2s:”

    If I enter $10,000 in that box per our example and save, an adjustment is added to the tax return so the $10,000 is not considered taxable.

    The next question asks whether I would like to treat those payments as earned income. Please note that choosing to include Medicaid waiver payments in your earned income will not include them in taxable income. Entering the payments here can potentially be beneficial to qualifying for certain credits. It does not make the payments taxable.

    You’ve also asked “Could I not claim this income on my tax return?” If the income was reported on a W-2, you would follow the example above to enter it in the W-2 section and adjust it off in the “Other Income” section. If you don't receive a W-2 for these payments, yes you can exclude it by not entering it. You could still choose to include it as earned income (not taxable) by entering the amount in the final section of the Medicaid waiver questions. It says:

    “Enter your nontaxable Medicaid waiver payments NOT included on W-2s that you'd like to include in earned income:”

    Again, entering an amount here would not make the income taxable. It would simply count as earned income that may or may not be beneficial for certain credits such as the Earned Income Tax Credit.

    In summary, if the payments are reported on a W-2, enter the W-2 normally and make it non-taxable in the “Income” > “Other Income” section. If not reported on a W-2, you do not enter the income anywhere. In either case, you can choose to treat the income as earned income in the “Income” > “Other Income” section.

  • luoyining88
    luoyining88 Member Newcomer
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    Thank you for your reply. I chose the "Yes" there is no "more questions will populate below", however it is show below "The amount of Zhong's earned income could affect various credits. You can try both including and not including Zhong's Medicaid waiver payments and see which one gives you the greater tax benefit. Choosing to include Medicaid waiver payments in earned income will not include them in taxable income".

    The other question that I have 1099 form medicaid waiver income, should I put 1099 income together to this non-taxable in the “Income” > “Other Income” ?

  • Taxlady06
    Taxlady06 FreeTaxUSA Agent
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    If you have multiple 1099 forms, you will enter the total for each taxpayer in the "Other Income " section as directed by the software.

    When you select "Yes" to having tax-exempt Medicaid waiver payments, fields will open up for each taxpayer listed on the return. If you are filing jointly, there will be a field to enter the total payments for both you and your spouse.

    These payments will then be included as earned income for applicable tax credits. The amount of earned income can affect various credits. You can try both including and not including these payments to see which option gives you the best outcome. Including these payments as earned income will not include them as taxable.

  • luoyining88
    luoyining88 Member Newcomer
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    Thank you for your answer.😀

  • everlywill1
    everlywill1 Member Level 2
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    Question: About Medicaid waiver payments. Can I include part of the tax-exempt Medicaid waiver payments but not all? If I must consist of all of them, can a credit be achieved as a deduction for providing adult care expenses?

  • RyanZ
    RyanZ FreeTaxUSA Agent
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    I located the following on the IRS website, that you may chose to include all or none, of the tax-exempt Medicaid Waiver payments. Please see https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income

    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).