Learn Italian: Scherzavo! Non era una bugia. - I was joking! It was not a lie.

You can add it right after the verb: Non era mica una bugia. This changes the meaning from a simple "It was not a lie" to a more emphatic "It wasn't a lie at all!" or "It's not like it was a lie!" You use this when you suspect the other person actually thinks you were lying.

If I want to add mica here, do I still need to keep the word non?

It depends on where you put mica. If it comes after the verb, you must keep non before the verb (Non era mica una bugia). However, if you place mica before the verb, you drop the non completely (Mica era una bugia). Both are perfectly natural and mean the exact same thing.

Why are we using the imperfect tense (scherzavo) instead of the passato prossimo (ho scherzato)?

The imperfect tense is used to describe ongoing, continuous actions or states in the past. Here, it translates perfectly to the English past continuous "I was joking". If you used the passato prossimo (ho scherzato), it would sound more like "I joked" as a single, isolated event, which doesn't fit the context of explaining what your state of mind was.

Why does the first sentence use the "io" verb ending, but the second sentence doesn't?