My MIL has a W2 for non-taxable Medicaid Waiver payments. Box 1 is $50K. Boxes 3/5 are $5K. Is the 5K of this taxable? How do I put this in the software?

I would think that normally the W2 would have a blank box 1 and I am not sure why on a non-taxable benefit, SS and medicare taxes would be taken out (based on $5K and not the entire $50K) unless this portion of the payments was considered taxable.  Not sure how to account for this in the software - thank you.