How to deduct 1099 misc for paid time off, when exempt from taxes due to Difficulty of Care

[cottagecharm11]

I am exempt from taxes on my W-2 income taxes due to the "Difficulty of Care Exemption". In the past using Turbo Tax if any are taxes are withheld in error by payroll they are refunded when I fill out my taxes on Schedule 1. Last year when I got a check, for over $600 for Paid Time Off (PTO) I was issued a 1099 NEC and had to claim it as self-employment. This year the PTO was sent by the Homecare Worker's Benefit Trust on a 1099 MISC. When entering the information as a 1099 MISC I filled the "What is this income for" question as Paid Time Off. The next screen has   'Does anyone of these uncommon situations apply, at the bottom of the list is a place to check the box for "This is a Medicaid Waiver payment that qualifies as a Difficulty of Care payment".  I was told when I received my first 1099 NEC that it was taxable because I did not work for the money, and it was taxable. So I assume I still owe taxes and should check the box "None of these apply"? Is this correct?

[MonikaK1 · Accepted solution]

Yes, the amount for paid time off is taxable. Enter it in the 1099-MISC section of TurboTax and answer the questions to indicate it's not from working.

See this IRS webpage regarding Medicaid waiver payments, in the Q and A section:

Q8. I am an individual care provider, and I receive vacation pay from the state, as well as Medicaid waiver payments for the care that I provide to a disabled individual living in my home under the individual's plan of care. May I exclude the vacation pay from gross income?

A8. No. The only amounts excludable from gross income under Notice 2014-7 are payments for the care of the disabled individual.

[cottagecharm11]

I did it right by answering no like you said to do so I would be taxed and then when I clicked done and was taken back to the main screen it showed a "0" like I was not going to be taxed on the income. I was confused at first. I had to click on the blue "Learn More" next to the"0" entry in order to read from the pop up window that the income was moved to another area to be addressed as Business Income and that I would be taxed when I get to the area where TurboTax moved the income to.