If you paid the premiums with after tax funds the benefit payment is not taxable. If you paid the premiums pre-tax or your employer paid the premiums the the benefit payment would be taxable.
As for the 1099-MISC, you have to report that on your tax whether it is taxable or not. If it is non-taxable, you can also make an offsetting entry to zero it out. To do so in TurboTax Online:
- Click on Search and type in "Form 1099-MISC"
- Click on "Jump to form 1099-misc"
- Answer Yes to "Did you get a 1099-MISC?"
- Enter the information on your 1099-MISC. The amount you received should be in Box 3.
- Give a description - For example "Critical Care Insurance Payment"
- Indicate "None of these apply" on the "Do one of these uncommon situations apply?"
- Indicate "No, it didn't involve work like [your] main job
- Mark "[You] got it in 2024" only
- Mark "No, it didn't involve an intent to earn money"
Next you will enter an offsetting amount. In the Income section:
- Scroll down to "Less Common Income Home sale, cancelled debt....etc."
- Scroll to the bottom and select "Miscellaneous Income, 1099-A, 1099-C"
- Scroll to the bottom and select "Other reportable income"
- Answer Yes
- Enter the same amount that is on your 1099-MISC as a negative amount.
You will now have two offsetting entries on Schedule 1, line 8z, that net to zero.
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