This is a difficulty of care payment which is not taxable as income for federal or state taxes. They gave you the W2 to show that they deducted the California SDI from your gross income. You do not have to report the W2 on your tax return because Box 14 is for informational purposes only. If you itemize deductions, you can apply the SDI as state income tax paid, but you can add the $5.50 in the Deductions & Credits section. (You cannot efile with a W2 that has zero income in Box 1.
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