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She gets social security and pension and all her income (which is $2,300) goes to the Nursing Home (except $50.00 per month for personal expenses) - last year $1002 was withheld from her annuity check and when I filed her taxes online she got back around $500 but not the full $1002 - she is on Medicaid but they do not allow for the taxes she owes and they said call annuity place and have them not withhold for taxes, but does that mean she does not owe any taxes? She has no property or other income

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If the nursing home is her representative payee, they should be handling all of this, including her annual recertification for Medicaid. Do as they ask and all the money should go to the nursing home.
If she has no other income, there should not be any taxes due; her medical expenses more than offset her income. She would show those expenses by itemizing deductions. Hopefully the nursing home is doing the tax return, since they have all the records. Ask them to be sure.
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