Hi,
I'll preface by saying I'm not a tax professional.
Yes, back it out per the detailed instructions. I've done it for the past two years. It holds up my return, but I request a TAS advocate, and once they look into it, they give it the all clear to be processed. (If you get a TAS, have notice 2014-7 and the this https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income, Question #9.) Once you explain it, they'll give it the all clear.
Camilla
