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Originally Posted by lenora
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The Q11 and Q12 is what I'm confused about. I paid FICA because I wasn't sure whether the funding was exempt from FICA or not and I didn't want to underpay and get in trouble. But my husband died in March 2016 and I am subject to the earnings test for Social Security for the first time. My accountant followed the directions in Q11 at the link provided by Lenora, and the IRS treated the funding as difficulty of care payments, which we expected. The state did the same, and IRS and state taxes,were refunded because it was Medicaid Waiver funding for my intellectually disabled daughter. But FICA was withheld because sometimes the Medicaid Waiver is also exempt from FICA -- but not always (Q12 at the link). But now I'm worried Soc Sec will count it as earnings because FICA was paid on it.
I know the basics of the Social Security earnings test, but I have a specific question. Which line on the 1040 does SS use for the earnings test? I get difficulty of care payments for an adult child (a Medicaid Waiver) via a W-2. (I know that it shouldn't be a W-2 so please don't address that; next year it won't be on a W-2.) The difficulty of care payments are included in Line 7, but are subtracted on Line 21 so is nontaxable. And these difficulty of care payments are not included in the Total Income below Line 21.
Which line is used for the earnings test? It turns out that FICA was withheld from the payments, which I'm worried will mean it's considered earnings. If that's the case, I'd have to apply to the IRS for reimbursement of the FICA. I'd like to avoid that, as I hear it's a bear to accomplish a refund of FICA.
But the FICA was withheld in error (no corrected W-2 will be done for me), so I don't want to lose my Social Security over it. Again, this won't be the case next year. The mistake leading to the W-2 was my fault because I overlooked paperwork I should have completed when my husband unexpectedly died in March 2016.
Does anyone know, if FICA is withheld, is the income automatically considered earnings for the Soc Sec earnings test? Or does anyone know which line they use? There is no line labeled "Gross Income."
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