Yes, you pay normal taxes on the disability income that is reported to you on Form W-2.
Enter the insurance company W-2 in the same manner as your other W-2 income. The TurboTax question for this form is "Do you have another W-2 to enter?" It is accounted for here, and not in the section where your state PFL is entered, as for tax purposes they are two different things.
Box 14 is just an informational box - it is simply a notation letting you know that there is short-term disability income. Box 1 is the number used to calculate your taxable income. It often differs from Box 3 due to allowances for certain deductions from your normal taxable income that aren't deductible when determining the social security tax.
On your company's W-2 this is likely attributable to deductible items such as 401k deductions or other pre-tax deductions and is common. It could also be for some portion of your disability pay that was paid by your company if it was paid under a tax-free arrangement. t is difficult to know the exact reason for the difference without more information - but those items are frequently (but not always) also in box 12.
The amount paid directly by your company, if exempt from any tax, is adjusted for on the W-2 itself. You don't need to adjust that further. Only the amount specifically paid as PFL is treated differently and entered as such in the program.
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