Yes, the new ii code in Box 12 should result in reporting the Medicaid Waiver / IHSS income only for purposes of qualifying for certain credits. If you have a zero in box 1, but the income is reported in Box 12, you don't need to enter the W-2 at all unless you may be eligible for a credit such as Earned Income Credit for which you would need the earned income.
Earlier this season, users reported being able to file with a zero in Box 1, but this may have changed according to some reports. If you attempt to file and your return is rejected, try entering a 1 in Box 1 or leave it blank to facilitate e-filing.
If you don't have any dollar amounts on your W-2, you qualify to exclude the income under IRS Notice 2014-7, and you don't expect to qualify for Earned Income Credit or Additional Child Tax Credit, then you don't need to enter the W-2 at all.
See this help article for more information.
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