Everything looks appropriate except for row 1d which lists the Medicaid waiver payments not reported on form W2. Since this income (box 12a II on the W2) is part of the waiver payments, it should not be included in income ... right?
Yes and no. The IRS added code II in box 12 as kind of a catch all. It cannot be properly reported in box 1 or it will be taxed. So then it is separated out on line 1d because it is not included in box 1. So the IRS wants the amount not reported in box 1 of your W2 to be included on line 1d of your return and then on Schedule 1 it is backed out.
Line 10 on Schedule 1 should be a negative to the amount on line d. If it is not did you enter box 12 code II? This is how it gets the negative.
Medicaid Waiver Payments Not Reported on Form(s) W-2, Box 1 Enter your taxable Medicaid waiver payments that were not reported on Form(s) W-2. Also enter the total of your taxable and nontaxable Medicaid waiver payments that were not reported on Form(s) W-2, or not reported in box 1 of Form(s) W-2, if you choose to include nontaxable payments in earned income for purposes of claiming a credit or other tax benefit. Form 1040 Instructions page 24
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