People are often confused about what is and aren’t taxable. It’s no wonder people are confused about taxes- the tax code is incredibly complex!
Our blog post on IHSS income will help clear up some of the confusion. In it, we explain when IHSS is taxable and when non-taxable, also addressed the different situations that may arise in the future related to IHSS.
Is IHSS income taxable? IHSS income can be taxable or non-taxable. If you live with your client, IHSS income is not taxed. If you do not live with your client, it is not exempt and you will be charged taxes. This is due to a specific IRS rule called the difficulty of care tax exclusion, which exempts certain individuals from taxation.
Is IHSS Income Taxable?
If you earned money from the In-Home Support Services (IHSS) program for caring for someone you live with, you have the choice of including or excluding all or none of it as income on your tax return. This may enable you to qualify for CalEITC and other incentives.
The wages paid to WPCS providers who live with the beneficiaries of their services are not included in gross income under IRS Notice 2014-7, which states that they are excluded from gross income for Federal Income Tax purposes.
On March 1, 2016, the IRS issued a decision stating that IHSS wages paid to IHSS employees who live in the same house as the beneficiary of those services are also exempt from gross income for FIT purposes. This decision is also relevant to state income tax (SIT).
I reside with my customer. How can I join up?
Individual ProviderOne (IPOne) is the web-based, electronic payment system that allows Individual Providers to submit timesheets, get paid for hours worked for in-home clients, and manage Medicaid claims.
The IPOne payment system will be able to offer this income exclusion beginning in April 2020. This is not a choice for you to participate in. IRS instructions state that if you are an Individual Provider who lives with your DSHS customer, this exemption applies to your earnings. The IPOne payment system will be able to apply the income exclusion to your Federal Income tax obligation.
The PPL Washington IPOne website provides the Difficulty of Care Federal Income Exclusion Instructions and Applications. carefully go through these papers and information on this site.
If you fulfill all of the conditions, fill out the form as directed and return it to PPL for processing. Allow 1-2 payroll cycles for this income exclusion to be applied to your earnings, especially during the beginning when response volume is anticipated to be high.
If your living situation changes and you don’t live with your client at a later date, please fill out the appropriate section on the Application form and return it to PPL. It is your duty as a renter to keep track of your living situation status.
What happens if I stop living with the recipient?
If your beneficiary’s living situation changes and they no longer live with you but continue to provide care, file a Live-In Self-Certification Cancellation Form (SOC 2299) with the Processing Center. You should also submit SOC Form 840 (change of address) to the IHSS County Office.
Calculating Taxes On IHSS
If you live with the recipient and your IHSS wages are not taxable, we recommend that you continue to keep all of your income records. If you later move out and your wages become taxable, this will be important information for filing taxes on time and avoiding any penalties due to late payment or insufficient withholding.
You may be able to exclude all or part of your WPCS wages from your income if you provide care for the person. This should not affect other benefits, such as Social Security or Medicare, so long as you report all of your WPCS wages on any required forms.
If you aren’t living with your client, you must report all WPCS wages on your income tax return. You may claim allowable expenses on Schedule A of Form 1040.
How To File IHSS On Your Federal Taxes?
Follow these steps to submit qualifying Medicaid waiver payments excluded under IRS Code Section 131 in Notice 2014-7:
- Go to the Input Return tab.
- On the left-side menu, select Income.
- Select Wages, Salaries, Tips (W-2).
- Enter all information as reported on the W-2.
- On the left-side menu, select SS Benefits, Alimony, Misc. Income.
- Enter the excludable amount as a positive number in the Medicaid waiver payments to the care provider field.
The amount you enter will be a negative number on Form 1040, with the phrase “Notice 2014-7” displayed next to it.
State Taxes On IHSS
The wages paid to WPCS providers who live with the beneficiaries of their services are not included in gross income under IRS Notice 2014-7, which states that they are excluded from gross income for Federal Income Tax purposes.
On March 1, 2016, the IRS issued a decision stating that IHSS wages paid to IHSS employees who live in the same house as the beneficiary of those services are also exempt from gross income for FIT purposes. This decision is also relevant to state income tax (SIT).
Conclusion
If you provide IHSS services and earn income from them, it’s important to understand how that income is taxed. The good news is that if you live with your client, that income is not taxable.
However, if you do not live with your customer, the income is still considered taxable and you will be charged taxes on it. This is due to a specific IRS rule called the difficulty of care tax exclusion, which exempts certain individuals from taxation.
So long as you meet the qualifications for this rule, you can rest assured knowing that your IHSS income is safe from the taxman. For more information on this topic or help filing your taxes, please contact an accountant or tax specialist in your area. Thanks for reading!