She always gets the credit, but she hasn't filed for three years?  Too busy taking care of the MediCal patient, I suppose.  There is this FAQ from IRS, but @TaxGuyBill may have a better answer if there are cases where the credit is allowed even if the income is not taxed.

Q9. I received payments described in Notice 2014-7 that are treated as difficulty of care payments under Section 131. May I choose to include these payments in earned income for purposes of the Earned Income Credit (EIC) or the additional Child Tax Credit (ACTC)? (added May 8, 2020)

A9. Yes, for open tax years, you may choose to include all, but not part, of these payments in earned income for determining the EIC or the ACTC, if these payments are otherwise earned income (wages or income from self-employment).

https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income