May 6, 2021 - On May 5, 2021, the Office of Tax Appeal's precedential opinion in the Appeal of F. Akhtar and M. Akhtar (2021-OTA-118P) became final. The opinion provides that a taxpayer receiving income from a Medicaid waiver or In-Home Supportive Services (IHSS) program for caring for an individual the taxpayer lives with may elect to include all or none of that income as earned income. This determines the taxpayer's eligibility for the earned income tax credit (EITC) and other applicable credits like the Young Child Tax Credit (applicable to the 2019 and 2020 tax years) or the Golden State Stimulus (applicable to the 2020 tax year).
Claim for Refund for 2016 Tax Year – Time to File Soon Expiring
For some taxpayers the statute of limitations to file a timely claim for refund of the EITC for the 2016 tax year may soon expire on May 17 2021. If taxpayers believe they may be entitled to a refund for the 2016 tax year and would like to report such Medicaid waiver or IHSS income as earned income, taxpayers must file a protective claim before the expiration of the statute of limitations to claim a refund. A protective claim will hold open the statute of limitations for taxpayers while the 2016 Form FTB 3514 and instructions are updated to allow claims for refund to be perfected. The period of time available to file a protective claim for the 2016 tax year for taxpayers who filed their 2016 return on or before May 17, 2017, is May 17, 2021. For taxpayers who did not timely file their 2016 return, the period of time to file a protective claim is also May 17, 2021. For taxpayers who filed their 2016 original returns after May 17, 2017, and before October 17, 2017, the period to file a protective claim expires four years after the date they filed their 2016 return.
To file a protective claim for the 2016 tax year, taxpayers will need to send a letter that includes their name and taxpayer identification number that indicates they would like to file a protective claim for the 2016 tax year to report their Medicaid waiver or IHSS income as earned income and claim additional EITC. They will need to send the letter to:Franchise Tax Board
ATTN: 2016 Akhtar Decision Protective Claim
PO Box 3070
Rancho Cordova CA 95741-3070
Taxpayers who timely file a protective claim for the 2016 tax year will be able to perfect their 2016 claim for refund after the Form FTB 3514 and instructions have been updated to allow taxpayers to include or exclude such Medicaid waiver or IHSS income. FTB will contact those taxpayers who file a protective claim to provide instructions after the updated Form FTB 3514 and instructions are available.
Taxpayers who have not yet filed a 2016 return that now want to file to claim the EITC should still timely file the protective claim discussed above. FTB will contact those taxpayers with instructions for filing an original 2016 return to perfect their claim after the updated Form FTB 3514 and instructions are available.
Information on refund claims for 2017-2020 will be provided at a later date.
Visit In-home Supportive Services for more information.