Get your taxes done using TurboTax

In TurboTax, you can enter the W2 information- continue until you see the screen below.  You will be able to indicate that it is a Nontaxable Medicaid waiver payment that is not taxable.  While you do not have to pay income tax on the income (hence the zero withholding), it still must be reported and can be used as income to qualify for some credits like the earned income credit.

For more information, please see Certain Medicaid waiver payments may be excludable from income.