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Learn when to report tax-exempt IHSS income to the Internal Revenue Service and how to do so.
Updated 03/19/2024
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In-Home Supportive Service (IHSS) payments provide critical support to eligible individuals who are over 65, blind or disabled and have a disability and choose to remain in their own home. But, it can be tricky, as this type of income to the caregiver may be exempt from taxation in certain situations. In this article, we will cover when to report tax-exempt IHSS income to the Internal Revenue Service and how to do so.
Please keep in mind that the Social Security Administration (SSA) has separate reporting rules and may treat income to a caregiver differently if the caregiver also receives Social Security Disability Insurance benefits (SSDI), Supplemental Security Income benefits (SSI), or early retirement benefits.
What is IHSS?
IHSS is a program that provides assistance to individuals who are unable to remain in their own home without the aid of a caregiver. The individual requiring assistance hires qualified friends, family members or others to provide this assistance. In CA, this program is managed by the California Department of Social Services.
When is IHSS income considered non-taxable?
A caregiver’s IHSS income is not taxed if the care recipient permanently lives with the caregiver, and the caregiver has completed form SOC 2298. (The IHSS income is taxable for caregivers who live outside the household.) This means that while a caregiver may receive income for taking care of someone they live with, that income will not contribute to their AGI (Adjusted Gross Income). However, this income can still be considered earned income for purposes of calculating the Earned Income Credit (both CA and Federal).
When should I claim my non-taxable IHSS income as earned income?
If you have no other sources of earned income (e.g. W-2 or contract work. Click Here to learn more about types of earned income), then it would likely be beneficial to claim your IHSS Income on your return. This could qualify you for the Earned Income Tax Credit, which could potentially add over a thousand dollars to your refund!
Won’t this make me pay more than I should in taxes?
No, you will not owe any more in taxes than you would otherwise. This non-taxable earned income exception for IHSS exists solely to reward you for your hard work with the Earned Income Tax Credit.
How do I claim the income as non-taxable?
Per the IRS, “You should include the full amount of the payments reported in box 1 of Form W-2 as wages on line 1 of Form 1040 or Form 1040-SR. You should then subtract the excludable portion of the amount in box 1 on Schedule 1, line 8, “Other income,” of Form 1040 or Form 1040-SR”. In other words, you declare the income as reported on your W-2, then enter an income adjustment by adding a negative amount as “Other Income”. If you were not issued a W-2, you can use form 4852 to create a substitute W-2, using the SSN of the individual being cared for as the employer TIN in box 6. If you are using our TaxSlayer free self-filing option, click here to check out our screenshot guide for help finding the “Other Income” section of TaxSlayer.
What should I say as my reason for adjusting the income?
When asked to enter your reason for adjusting income, copy & paste the following statement: Notice 2014-7 – Live-In IHSS payments are excludable from income.
Does IHSS Income affect my eligibility for other credits or stimulus payments?
No – claiming non-taxable IHSS income will not disqualify you from receiving other credits, or be factored as income that may put you over income thresholds.
What other important information do I need to know?
Each benefit a person receives falls under the rules of the agency which provides that benefit.Taxable income and countable income are different. Taxation falls under the rules of the Internal Revenue Service. The Social Security Administration (SSA) decides if IHSS payments are counted as income for SSI and/or SSDI beneficiaries who receive IHSS payments while providing caregiver services.
If the caregiver is receiving a monthly payment from SSA, the IHSS payment may or may not count as income depending upon various rules. The payments must be reported to SSA.
Caregivers who receive SSI payments based on disability and/or SSDI are eligible for free services from a Benefits Counselor to answer questions. If you are the caregiver who receives another type of payment from SSA like early retirement benefits, contact your local SSA office directly with questions.
