According to this State of Illinois website, Disability benefit is considered income and is subject to federal income taxes. However, disability benefits are not subject to Illinois state income taxes.
Here is how to make it non-taxable in Illinois assuming the W2 in question just reported the LTD benefit and no other income.
- Begin by preparing your Illinois state return.
- When you get to the page that mentions Here's the income that Illinois Handles Differently
- Scroll to the bottom of the page to miscellaneous>any other additions>start
- For a description, type in LTD benefit paid on W2-Non taxable in Illinois
- Enter the amount of the W2 as a negative number. For an example, if the amount is $10,000, you will enter it as -10,000.
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