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.
