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Mgconslts
Returning Member

Critical Illness Insurance Received for NJ and Federal taxes

My wife received a Critical Illness Insurance check last year.  What do we need to do on the NJ tax form to make it non taxable according to that rule I read about here? Critical Illness Insurance Tax Laws in New Jersey – FinsuranceGuide  Also, what is the correct way to make it non taxable on the Federal return?

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SabrinaD2
Employee Tax Expert

Critical Illness Insurance Received for NJ and Federal taxes

In New Jersey, critical illness insurance payouts are generally not taxable and do not need to be included in your state tax return.

 

For Federal taxes, these payouts are also not taxable if the premiums were paid with after-tax dollars. However, if the premiums were paid pre-tax, the payout may be taxable and should be reported.

 

Steps to Make a Critical Illness Payout Non-Taxable in TurboTax for 2024:

If you received a 1099-MISC for a critical illness payout and the premiums were paid with after-tax dollars, here’s how to report it correctly in TurboTax to ensure it’s treated as non-taxable income.

 

  1. Enter the 1099-MISC Form:
    1. Log in to TurboTax
    2. Go to the Income TurboTax.
    3. Select Add Income
    4. Select Form 1099-MISC Form  then go back to Add Income
    5. Enter information as on the 1099-MISC Form
  2. Offset ‌Income:
    1. Navigate to the "Less Common Income" section.
    2. Select "Miscellaneous Income" and then "Other Reportable Income".
    3. Enter a description such as "Nontaxable offset for 1099-MISC critical illness payout" and input the negative amount of the 1099-MISC payment.

Why Reporting It This Way Is Necessary:

Entering the 1099-MISC ensures that your return matches the IRS's records, as they also receive a copy of the form. Marking it as non-taxable allows you to comply with reporting requirements while ensuring the payout isn’t incorrectly taxed.

 

 

 

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