Disability payments come from an insurance fund that is funded by premiums paid into the fund. Those premiums are either paid by employers on behalf of employees or deducted from employee paychecks. Depending on how your employer handled the disability premiums determines the taxability of the benefits from that fund.
For the taxpayer, one just needs to enter W2 forms received into TurboTax and they will be handled per the information entered from the form.
If there is an amount in box 1 of the form W2, it is taxable income. The amount in box 1 will not include any nontaxable disability payments. Any amounts reported in box 12 with code J show the nontaxable disability payments.
So if there is no amount in box 1, but there is an amount in box 12 with code J, you do not need to report that W2 information on your tax return as there is no taxable income shown on the W2.
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