In ProSeries we back the wages out as a negative on the Other Income line with the explanation "Excluded wages per IRS Notice 2014-7",  I dont speak Lacerte, so Im not sure how you make that happen in your program.

There is a spot in miscellaneous income for medicaid waiver payments.  That will subtract out on miscellaneous income line.

Enter the wages as normal on Screen 10, wages. Then go to Screen 14.1, SS Benefits, Misc Income and look under Alimony and Other Income. There is a line to enter Medical waiver payments to care provider. Enter the wages there and they will be subtracted.

Any thoughts on how to add this back for a state return (Oregon)?

Try the State & Local Modifications screen

I spoke with an Oregon Dept of Revenue rep. and was informed that Oregon does not tax difficulty of care pay and to use the AGI that carries from Federal and that if there is any withholding you will receive it back.