Private disability income reporting

[mg73]

I work in North Carolina and live in South Carolina.  i went on FMLA and short term disability for part of 2021 for a medical condition.  The disability coverage was through a private insurance company as part of my benefits package through my North Carolina employer.  I received a W2 from the private insurance company covering my 2021 disability payment covering the part of the year I was on disability.  No state or federal income tax were deducted from my disability payments which is fine, I knew they weren't going to.

But i have 2 questions:

1:  Do I just add disability payments as a separate W2 just like my regular employer's W2?

2.  Since I work in North Carolina but live in South Carolina, which state do I do I pay taxes on the disability income?  The disability W2 is confusing because in Box 15 where state income is listed, it lists both North Carolina AND South Carolina.  Furthermore, in box 16 where it lists State Wages, it lists the same total income twice, once for each state. 

Basically, which state gets the taxes for my disability income: the state in which I work?  or the state in which I live.

Thanks for any help.

[DMarkM1]

Yes, you will enter the W2 as you would any W2.  You enter the NC and SC lines from the W2 into TurboTax; those entries will transfer to the appropriate state returns.  Both states, NC and SC, will tax the short-term disability payments.   As a non-resident, NC is taxing the NC source income and as a resident, SC is taxing all income from all sources.  

However, to avoid double taxation, SC will give you a credit on the taxes you paid to another state, in this case NC.  

NOTE:  The same concept applies to your regular W2 as well.  It is NC source income taxed by both states, but your resident state will give you a credit on the taxes paid to the non-resident state.  

In the personal information section of TurboTax you will list SC as your resident state and indicate you had income from another state and select NC as that state.  These steps will generate the proper resident and non-resident state returns.   

When you start your state taxes, you will want to complete the NC non-resident returns first and take note of the total income that was taxed in NC as well as the tax paid to NC on that income.  You will use those numbers in the SC interview in the “Taxes paid to another state” topic.

Here are a couple of links with more information on NC and SC taxable income. 

NC taxable income

SC taxable income   (see the “Income” section and the “Tax Credits” section)