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Per IRS Notice 2014-7, payments from a state Medicaid Home and Community-Based Services program are considered "difficulty of care" payments and are specifically excluded from gross income for income tax purposes. Please see this IRS article for more information. 

For the W-2 with an amount reported in box 1, please follow the steps below to enter it on your tax return. You will enter it as wages and then enter an adjustment on Schedule 1, line 8 so the payments are not included in taxable income. 

1. Click on Federal from the menu on the left-hand side and then click on Wages & Income at the top
2. Click Edit/Add next to Job (W-2) and then click on Add a W-2
3. If you received a W-2 for your Medicaid Waiver Payments enter the information as reported on your W-2. Enter the amount you received for Medicaid Waiver Payments in Box 1.
4. Continue through the screens until you get back to "Wages and Income" section and then scroll down to Less Common Income and click on Show More
5. Click on Start or Revisit next to Miscellaneous Income and then click on Start next to Other Reportable Income and select Yes.
6. In the "Description" section, enter "IRS Notice 2014-7 excludable income" and in the "Amount" section, enter the W-2 box 1 amount (or amount of Medicaid Waiver Payments) as a negative (-) number. 

NOTE: This will both show the W-2 on your return and explain why it is not taxable.

If the 2020 W-2 box 1 also reported the excluded "difficulty of care" income, amend the tax return and report the excludible income as a negative number.  See this TurboTax help.