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Yes. You have to enter all of your income when you prepare a tax return.
Go to Federal> Wages & Income>>Retirement Plans and Social Security (SSA1099 and 1099RRB) to enter your SSA1099.
Yes, it is still income to you, even if it never hits your bank. If you received the payment and turned around and paid Medicare with the money, it would still be the same thing. If you itemize, you can claim the medical insurance deduction.
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