Yes,
Difficulty of Care income can be both tax exempt but also used for credits, such as the Earned Income Tax Credit.
Entering into TurboTax is a bit confusing so please follow these steps carefully.
Sign into TurboTax and continue through until you can start selecting "Wages & Income" located at the top of the screen
Click on Wages & Income
(If the program asks about your W2, select Skip for now )
Select answers to the following questions if necessary to move forward
Click Add more income
Scroll down to the VERY LAST option "Less Common Income" and click Show more
On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click START
On this new drop-down list scroll to the VERY FIRST option "Other income not already reported on a Form W-2 or Form 1099"
Click START
Select YES to the page titled "Other Wages Received" and Continue
Select CONTINUE on the "Wages earned as a Household Employee" screen (enter nothing here)
Select CONTINUE on the "Sick or Disability Pay" screen (enter nothing here)
Select "Yes" on the "Any Other Earned Income" screen and continue
Select "Other" on the "Enter Source of Other Earned Income" and Continue
In Description Box type "Qualified Medicaid Waiver Pay" and the amount
(NOTE- YOU MUST ENTER ALL THE INCOME OR NONE)
Click Done
This will put the income on your 1040 line 1 where it needs to be.
Now you need to make an entry so that TurboTax will make the income exempt from tax.
(NOTE- AT THIS POINT, YOU MAY NOT OWE ANY TAX ON THE INCOME AND YOU MAY ALREADY HAVE THE EIC CREDIT INCLUDED IN YOUR REFUND, THEREFORE THE NEXT STEPS MAY OR MAY NOT CHANGE THE FEDERAL REFUND METER ON TOP OF THE TURBOTAX SCREEN)
Go back to the Wages & Income section
(you will be repeating some steps, but not all)
Scroll down to the VERY LAST option "Less Common Income" and click Show more
On this new drop-down list scroll down to the VERY LAST option "Miscellaneous Income" and click REVISIT
Now scroll down to the VERY LAST option "Other reportable income" and click Start
Select YES on the "Any Other Taxable Income?" screen
Type "Tax Exempt Income on line 1" and the same amount you entered before but as a NEGATIVE (put - in front of the number)
This NEGATIVE number should show on your 1040 line 8
Go through the return and answer any questions regarding the EIC if necessary.
TO CHECK IN TURBOTAX ONLINE:
Click "Tax Tools" on the LEFT SIDE BAR then click "Tools" that open below
Click "View Tax Summary" on the screen
Click "Preview my 1040" which now appears on the LEFT SIDE BAR
Scroll though the 1040.
The amount of income should be on line 1
The adjustment (negative) should be on line 8
If this is all you're reporting, line 11, your Adjusted Gross Income (AGI) should be 0 (zero)
Line 27a shows the Earned Income Credit (EIC) if you are eligible
Below is a link to the EIC Income limits for 2021
Income Limits for EIC
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