If you provide care to an individual who has a physical, mental, or emotional handicap, the difficulty of care payments you receive are generally excluded from income. Review the information below to determine how to report these payments, if necessary, on your tax return. See the IRS Certain Medicaid Waiver Payments May Be Excludable From Income website for more information.
1099-MISC and Schedule C
Once you have entered the Form 1099-MISC income, the program will bring you through additional screens to complete Schedule C. To enter the excludable amount as an expense, continue until you can select the types of expenses that you have, including the Qualified Medicaid Waiver payment. Enter the excluded Qualified Medicaid waiver payments exclusion (Notice 2014-7) amount, then click Continue.
If you need to enter an adjustment for Notice 2014-7 payments received on Form W-2, follow the steps below.
Online
Dashboard
From within your TaxAct return, click Income.
On smaller devices, click the menu at the top left corner of your screen, then make your selection.
Click the Explore More drop-down.
Click Add beside Other Income.
Click Continue, then enter the amount in the box Amount of Medicaid waiver payments to exclude from taxable income.
Classic
From within your TaxAct return, click Federal.
On smaller devices, click the menu at the top left corner of your screen, then make your selection.
Click the Other Income drop-down, then click Prizes, awards, or other miscellaneous income.
Enter the amount in the box Amount of Medicaid waiver payments to exclude from taxable income.
Desktop
From within your TaxAct return, click Federal.
Click the Topics drop-down, then click FORM.
Complete the rest of the interview process.
Additional Information
Generally the payor should not issue a Form W-2 or Form 1099-MISC if they know the difficulty of care payments are excludable from your income. If you receive a Form W-2 or 1099-MISC reporting excludable difficulty of care payments, notify the payor that you are choosing to exclude the payments from your gross income. They should file and issue a corrected Form 1099-MISC or Form W-2CCorrected Wage and Tax Statement. Otherwise, use the previous information to report the income and exclusion.
The IRS is allowing taxpayers who received and reported payments in prior years to amend those prior year returns in order to exclude the income based on the new rules outlined in Notice 2014-7. Generally, for a credit or refund, you must file Form 1040-X within three years (including extensions) after the date you filed your original return or within two years after the date you paid the tax, whichever is later.
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