The list you posted does not have the option of choosing "Nontaxable Medicaid Waver Payments..."
and it should.
No, you should not alter Box 12
You should delete that W-2 altogether,
close out TurboTax and then re-open and MANUALLY enter the W-2.
I think something got messed up when the W-2 was imported.
Let us know if that solves the problem or not.
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