@Tsalazar It depends. Because of the recent court case, if claiming the Waiver Payment can increase your Child Tax Credit and your Earned Income Credit, you have the option to report the income as taxable wages. In this case, report the W2 as a normal W2 for the Federal Return, but check your state instructions on how to exempt the income on the state return if applicable.
However, if you do not get a benefit by including it as taxable income, then you need to report the W2 and subtract out the income. Please see the description by TurboTax Alumni BarbaraW in the following link: I don't know where to enter the IHSS tax exempt for IRS
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