Enter your Box 3 amount into Box 1 of your W-2 (reported as $0), and choose 'Nontaxable Medicaid waiver payments that qualify as difficulty of care payments' on the Uncommon Situations page, on the following pages indicate that 'all of it' in Box 1 is for difficulty of care payments, and that you did not get any other difficulty payments that are not in Box 1 (since you're entering the Box 3 amount already).
This removes the income from taxation, but includes it for any credits you may qualify for (EITC, for example). You'll see the income included on Form 1040, Line 1, but then subtracted out on Line 8.
If you're using TurboTax Online, in the left-side menu, go to Tools > Tax Tools, then choose View Tax Summary from the pop-up window. Then, back at the left-side menu, choose Preview my 1040. Look at the actual tax form, not just the running amounts at the top.
Your Efile will be rejected with a $0 in a W-2 Form in Box 1.
Here's the instructions for How to Enter Tax-Exempt Medicaid Waiver Payments.
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