Can I enter life insurance proceeds as non-taxable income for sales tax purposes?

[Coleen3 · Accepted solution]

Yes.

Nontaxable disability income and certain other nontaxable income can be reported in TurboTax to increase your sales tax deduction, lowering your overall tax liability. Do not include income you have already reported as taxable income. The following are some examples of nontaxable income you can include for calculating the sales tax deduction:

• Child support
• Worker's compensation
• Military basic quarters and subsistence allowances
• Tax-exempt interest
• Public assistance payments
• Economic recovery payments
• Nontaxable Social Security and Railroad Retirement benefits
• Nontaxable combat pay
• Veteran's disability pay for active service-related disabilities in the military or certain government services
• Veteran's disability pay for combat-related injuries or illness

[caker6775]

Thank you!

[Coleen3]

My pleasure

[Roowaller]

My husband receives monies from a private disability insurance we bought several years ago.  On the form it is listed as a W-2 not a 1095 or 1099.  So when I finished my taxes online it rejects it saying I have to have income under that W-2.  It clearly says third party insurance and it clearly says nontaxable income.  If I put the amount paid, Turbo Tax will count it as income and I'll be taxed for it.  Do I take it off and hope for the best?  I don't want it to count as income and rely on IRS to refund me the money for nontaxable income.  HELP!  And thank you!

[RobertB4444]

@Roowaller  For non-taxable income there should be no income in box 1 of that W-2.  And if there is an amount in box 2 that is taxes withheld that will be returned to you if box 1 is blank.  So I am assuming that that is the case and that is what TurboTax does not like.  If this is what is holding you up go ahead and put $0.49 in box 1.  TurboTax is trained to warn you when zeroes are in places it doesn't think zeroes should be.  It is also trained to round off to the nearest dollar.  So putting anything less than fifty cents in a box is the same as putting a zero - which is what should be in box 1 anyway!

[RobertB4444]

@Roowaller   After thinking about your issue a bit it is troubling to me.  Did your issue get resolved?  Could you tell me what boxes on your W2 have numbers in them so that I could offer a better solution?