You need to deduct up to $5,000 from your income after reporting the amount listed on the Form 1099-MISC. You can read more about the employee death benefit exclusion here: Employee death benefits
To enter the reduction in income on your tax return, follow theses steps:
1. From the Federal menu in TurboTax find Wages and Income
2. Find Less Common Income
3. Choose Miscellaneous Income, 1099-A, 1099-C
4. Choose Other Reportable Income
5. Enter a description of the reduction and the adjustment as a negative number
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