It looks like you cannot made an adjustment on your Illinois tax return to subtract the amount of Long Term Disability income reported on Form W-2. The Illinois form for making adjustments to income is "Schedule M, Other Additions and Subtractions for Individuals". All allowed subtractions are explicitly listed on the form (i.e. there is no miscellaneous or other subtractions option). This is the case in TurboTax as well as the paper form. In addition, the instructions for Schedule M, under "What other income is not allowed as a subtraction?" states: You may not subtract anything that is not listed on Schedule M. For example, you may not subtract:
- any wages reported on your federal return. If you believe the wages reported on the Form W-2, Wage and Tax Statement, you received from your employer are incorrect, you must obtain a corrected Form W-2 or a statement from your employer, on company letterhead, stating that your Form W-2 was incorrect. We will not accept a letter from you or your tax preparer.
Illinois may not consider LTD payments to be taxable, but because the third party payer included them as State Wages on the W-2 you will have to either include them in your income and pay state income tax on the amount, or have your employer or the third party payer issue a corrected W-2 or provide you a letter saying that your W-2 was incorrect.
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