You most likely will receive a 1099 because the state is required to report to the IRS. If you receive the 1099, you will want to enter it to report it even though it is not taxed, and you can use it as income for the Earned Income Tax Credit if you qualify.
To enter the 1099, follow these steps:
- Go to Wages & Income - Less Common Income -Miscellaneous Income, 1099-A, 1099-C. (Click Start)
- Other income not already reported on a Form W-2 or Form 1099; (Click Start)
- Did you receive any other wages?; (Click Yes)
- Leave blank the box for Wages earned as a household employee (Click continue)
- Leave blank the box for Sick or disability pay (Click continue)
- Enter the amount of Medicaid waiver payments on Certain nontaxable Medicaid waiver payments not reported on Form W-2 (Click Continue)
In the Earned Income Credit section under Deductions and Credits, you will be asked if you want to add your Medicaid waiver payment to your income for this credit. You can try it both ways, including it and excluding it from the calculation for the credit and see which way benefits you most.
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