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Medicare Wavier Payments Taxable?

Notice 2014-7 pymts from Medicaid Waiver Svcs Pgms are excluded from gross income, yet my state reported them on 1099-Misc box 6.  I care for my disabled son, I'm not a business, nor do I provide medical or health svcs.  IRS pub states to enter 0 on line 21 on Form 1040 for these pymts & enter "Notice 2014-7” on the dotted line.  Is this the correct way to  documented it on our taxes on TT?  This is my first year to receive payments.

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Medicare Wavier Payments Taxable?

Truthfully, you should not be getting a W-2 or 1099 for this income. Since you did, you will have to report the amount on this 1099-MISC as income, because it's being reported to the IRS. (It will appear on your Form 1040, Line 21 Other Income.)  Then you will make a second entry to zero out the income.

To report the income:

  • In your Federal return, choose the tab for Wages & Income
  • Scroll down to Other Common Income and Show more
  • Start/Revisit Form 1099-MISC
  • Type in the reason for your 1099-MISC (Medicaid Waiver Payments)
  • Indicate the reason for your payment on the next page (none of these apply) 
  • On the following page indicate that it does not involve work like your main job and Continue
  • Indicate the year received and Continue
  • That it did not involve an intent to make money and Continue
  • And is not a recurring payment (received in the past or expected in the future).   
  • The income will be reported on line 21 of your return. 

To enter the exemption from income:

  • Scroll down to  Less Common Income and Show more
  • Start/Revisit Miscellaneous Income and choose Other reportable income 
  • Say Yes to continue to the screen "Other Taxable Income". Enter the description "Notice 2014-7" as  and the amount as a negative number

A corresponding negative amount will be entered, and line 21 will be zero.  You may not see any of this on Line 21 of your return, but it will be transmitted to the IRS.

You should discuss with your state that these payments are not to be reported to you as income in the future, as they are not.  

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