Taxes related to Disability & form W-4-S (withholding from sick pay Form)

[Magnfdplaid878]

1. Looking for recommendation of how to fill out form W-4-S (withholding from sick pay Form) based on my situation.  I have never had to do so before. For 2024, I will be totally off work due to medical disability (started in 2023). For 2024 filing, for the first 4 months of the year I first received the remainder of my benefit for CA State Short Term Disability Income (not taxable); and, at the same time, for those same months, I also received the remainder of my employee earned/paid time off as 'supplemental income' (details: gross total paid out of about $26k; approximate breakdown:  401k contribution of about $20k (pretax deduction); of the remaining, $2.5k goes to voluntary deductions (after tax), another $2.5 to Tax deductions, and about $1k in net payment. Starting in May 2024, I will stop those incomes, and instead start to receive payments from Long Term Disability Insurance Income of about $6k a month  (combined total, as paid by Federal SSDI and MetLife LTD plan [benefit paid for by employer]).  I live in California, and plan to file as single;  I have no dependents, nor can I be claimed as one by someone else; I have always used standard deduction in filing taxes in past. I was given the W-4-S (withholding from sick pay Form) as an "option to fill out." I would rather have the Withholdings taken out each month like a paycheck can do, than to just owe a large sum all at once when taxes are due. But, I do not know anything about the way these Long Term Disability Insurance Incomes are taxed differently and such, especially given my specific details I laid out below. ideally like to find best way to not over pay in Withholdings, but have a good estimate of what would likely be owed in my case so I can plan ahead and have a close to accurate amount already close to paid come tax time. Then, based on that what's would be recommendation(s) on how would fill out W-4-S (withholding from sick pay Form) to best achieve this given the timeline and details laid out above.  *please note any identifying details have been altered for privacy*

[awillis2]

You are correct, the W-4-S Request for Federal Income Tax Withholding From Sick Pay form is formidable.

Fortunately, the actual form has a series of questions that should help to answer your questions. You have provided a lot of detailed information in your question, but there are still more details that you must obtain to complete W-4-S:

Line 1: Adjusted Gross Income that you expect in 2024;

Line 2: Since you won't be itemizing question two asks for you to enter the Standard Deduction for 2024 which happens to increase to $14,600 for 2024 tax year;

Line 3: (subtract Line 2 from Line 1);

Line 4: Figure your tax by using Schedule X on the attached 2024 Tax Rate Schedule on page 2 of the W-4-S;

Line 5: Credits - you stated you won't be claiming any;

Line 6: Subtract Line 5 from Line 4;

Line 7: Estimated federal income tax withheld or to be withheld from other sources during 2024 or paid or to be paid with 2024 estimated tax payments.  Since you won't be receiving any more payments in 2024 from your employer this could be found on your last paystub, or inquiry to your employer's accounting department;

Line 8: Subtract Line 7 from Line 6;

Line 9: List the number of Sick Pay Payments you expect to receive this year to which form W4S will apply - the information you provided indicates that you'll be able to calculate this number on your own; and

Line 10: divide Line 8 by Line 9 and round to the nearest dollar.

According to the steps listed on Form W-4-S, the figure you obtain on Line 10 will give you the "amount that should be withheld from each sick pay payment." See Form W-4-S.

You stated that you were "given the W-4-S" as an option to fill out.

"You can generally exclude from income payments you receive from qualified long-term care insurance contracts as reimbursement of medical expenses received for personal injury or sickness under an accident and health insurance contract. Also, you can exclude from income certain payments received under a life insurance contract on the life of a terminally or chronically ill individual (accelerated death benefits)." Refer to Publication 907, Tax Highlights for Persons with Disabilities.

"You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer: If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that's due to your employer's payments is reported as income." See IRS Publication 907.

I'm providing IRS Publication 907 references for you to determine, based on your circumstances, whether the disability payments should be taxable and whether to complete Form W-4-S.

Another suggestion for you: make sure your employer withheld taxes from the paid time off ("PTO") income you received.

We are terribly sorry to hear about your circumstances leading to Long Term Disability payments.

Thanks for reaching out.

[slaudenslag]

First, you need to determine if the short term and long term disability income is taxable.  Keep in mind, the short term disability income might not be taxable by CA but could be taxable by the IRS.  Taxability depends on who paid the premiums on the disability policy.  Your disability income will be taxable if the plan was paid for by your employer, partially taxable if you and your employer contributed to policy premiums and not taxable if benefits are from a private disability insurance policy.  You did mention that the disability plans were employer paid, thus considered taxable income.  Here are articles discussing taxability of short term and long term disability payments received:  

https://turbotax.intuit.com/tax-tips/disability/are-short-term-disability-claim-payments-considered-...

https://www.irs.gov/faqs/interest-dividends-other-types-of-income/life-insurance-disability-insuranc...

You have a variety of income sources throughout 2024 so you will need to analyze each income type to determine it's taxability.  Once you've done this, you can complete the W-4S with your estimated adjusted gross income and any income tax withheld to date to determine if  withholdings are recommended from your future disability payments.