Retirement tax questions

No, it is best to put it on your tax return and then enter a balancing amount to let the IRS know why it is not taxable. If you leave it off completely, the IRS may pick it up as unreported income and start an automated audit.

This is how to report this in TurboTax:

1. Open your return and select Federal, then Wages & Income.
2. Scroll down the list and find the section called, Less Common Income, expand the section. 
3. Scroll all the way down and select Miscellaneous Income, 1099-A, 1099-C.
4. Click Start to the right of Other reportable income at the very bottom.
5. Answer Yes and click Continue.
6. If you have not yet entered your 1099-MISC in your return, enter "Red Hill comp" as the description and amount from your 1099 on this page, click Continue.
7. Click +Add another income item, under the income summary.
8. Enter "Red Hill not taxable" as the description and the same amount as a negative number, click Continue.
9. Click Done. 

Your summary should look something like the screen below. This will include the form on your return, but it will not change your taxable income.