However if box 1 is a non zero amount then ... 

Qualified Medicaid waiver payments on a W-2 show as earned income for EIC

Certain Medicaid waiver payments are treated as difficulty-of-care payments when received by an individual care provider for care of an eligible individual (whether related or unrelated) living in their home. These payments are excluded from gross income and shouldn't be included in your earned income.

If these payments are incorrectly paid to you in Box 1 of a W-2, first try to get a corrected W-2 from the payer. If you can't get a corrected W-2....

Don't enter the W-2 in the Wages & Salaries section

Instead, enter them this way:

1. In Income & Expenses, go to the Less Common Income section and select Start next to Miscellaneous Income, 1099-A, 1099-C.
2. On the next screen, select Start next to Other Reportable Income and answer Yes on the next screen.
3. Make two entries on the Other Taxable Income screen:
   1.  Make your first entry description W-2 EIN # [enter EIN number from W-2] Box 1 Medicaid Waiver Payments and enter the box 1 amount as a positive number.
   2. Next select Add Another Miscellaneous Income Item and enter the description IRS Notice 2014-7 excludable income and enter the W-2 box 1 amount as a negative (-) number. This both shows and explains removing the W-2 income, placing a zero on line 8 of your 1040.