Should I remove wages from W2 Box 1 and move to Box 12 if they are nontaxable Difficulty of Care payments?

[Vanessa A]

No.  You should enter your W-2 exactly as you received it and then after you finish entering it under "Let's check for other situations" select Non Taxable Medicaid waiver payments that qualify as difficulty of care payments.   Then on the next screen you can select some of it or all of it is difficulty of care payments and if not all of it, you will be able to enter the amount that is. 

[Happiest_Taxpayer]

Thanks, but there is no option for “Non Taxable Medicaid waiver payments”.

[DoninGA]

@Happiest_Taxpayer After you have completed the entry of the W-2, there will be a following screen labeled Let's check for other situations check the box labeled Nontaxable Medicaid waiver payments that qualify as difficulty of care payments and continue.

[Happiest_Taxpayer]

I repeated the W-2 steps several times and the Other Situations page never included that option.

[Happiest_Taxpayer]

Also, these instructions clearly say not to enter the W-2 exactly as it was received. 

[DoninGA]

@Happiest_Taxpayer If you are using the TurboTax online editions, clear cache and cookies from your web browser.  Or change your web browser to one of these that you are not currently using, Google Chrome, Mozilla Firefox, Microsoft Edge.

If you are using the TurboTax desktop editions, with OS are you using Windows or Mac?

Click on Online at the top of the desktop program screen and click on Check for Updates

Edit the W-2 that you have entered.  On the screen for entering the various amounts in the boxes 1 thru 20 of the W-2, when finished click on Continue.

Either the first or second screen after you click on Continue will be the Let's check for other situations regardless of whether you are using the TurboTax desktop editions or the TurboTax online editions.

What screens do you see after clicking on Continue after the W-2 entry screen?

[Happiest_Taxpayer]

I switched to a different computer (so it can’t be a cache issue) and I’m using Chrome. Here is what I see after entering the W2, with a value in Box 1. 

[DoninGA]

 Which operating system are you using, Windows or Mac? 

I am using TurboTax for Windows with the latest update.  Version 25.000.0271

On that screen just below the box for Nonqualified pension plan not on my W-2 isNontaxable Medicaid waiver payments that qualify as difficulty of care payments on my TurboTax Premier edition. 

@Happiest_Taxpayer

[Happiest_Taxpayer]

I am using Windows and accessing Turbotax online.  Again, this article which was updated earlier this year leads me to believe the workaround is to enter the W2 with a blank Box 1.  https://ttlc.intuit.com/turbotax-support/en-us/help-article/form-w-2/qualified-medicaid-waiver-payme...

According to this post the issue is related to the new W-2 Box 12 code II introduced in 2025.  https://ttlc.intuit.com/community/after-you-file/discussion/how-do-i-enter-my-tax-exempt-medicaid-wa...

This person appears to have the same issue. https://ttlc.intuit.com/community/taxes/discussion/re-w2-with-box-1-empty-can-t-e-file/01/3592166/hi...

[MarilynG1]

If you're not getting the option to indicate that your W-2, Box 1 is reporting non-taxable Medicaid Waiver Payments under 'Uncommon Situations'  you can enter an offsetting entry to exclude this income. 

1. Go to the Wages & Income section, scroll down to Less Common Income, and select Start/Update next to Miscellaneous Income, 1099-A, 1099-C.
2. Scroll down to Other reportable income, Start/Update.
   • Description: Enter "IRS Notice 2014-7 excludable income".
   • Amount: Enter the exact amount from Box 1 of your W-2 as a negative number 
3. Finalize: You'll see this as a subtraction on Schedule 1, Line 8 of your Form 1040

@Happiest_Taxpayer 

[Happiest_Taxpayer]

I did not enter it as a negative value in a 1099 yet I have a subtraction on Schedule 1, Line 8 of my Form 1040. I assume this is because I selected Code II for Box 12 of the W-2 form.  So based on what you're saying, if I keep the value in Box 1 of W2 and Box 12 then the negative value in the 1099 would have to be double (the total of Box 1 and 12), to prevent being inappropriately taxed.  I think that's also what the IRS website says below.    [If box 1 is not zero]..."report the box 1 amount on Form 1040 line 1a, and the box 12 Code II amount on Form 1040 line 1d. Then, on Schedule 1 (Form 1040), line 8s, enter the total amount of the nontaxable Medicaid wavier payments reported on Form 1040, line 1a and 1d, in the entry space in the preprinted parentheses (as a negative number). " https://www.irs.gov/individuals/certain-medicaid-waiver-payments-may-be-excludable-from-income 

[RobertB4444]

Reporting the total amount from box 1 and box 12 will reduce the taxable amount to zero and that is the goal here.  SO that is the correct procedure.