Is short term disability taxable?

[karmic_caboodle]

My W-2 has no mention of any short term disability income and my employer and the third party company they use to disburse the payments are giving me mixed answers so not sure if it is taxable or not.

[MaryK4]

If you pay for the premiums yourself with taxed income, your short-term disability benefits are not taxable. In some cases, this payment may automatically be deducted from your paycheck. If your employer pays for the premiums, you must pay taxes on short-term disability.

[karmic_caboodle]

sorry if this is a stupid question but how do i determine if i paid the premiums myself? coz i was ill and office just said they would send me a check for short term disability for first few months and then CA state would be funding the other months. they never spoke of premiums.

[PattiF]

If there is an amount in Box 12 with a Code J, then the short-term disability is not taxable. 
 

Whether the payments are taxable depends on how and when they are paid. If all or a portion is taxable, the taxable portion will be reported on your W-2 that is issued by your employer, or reported on a Form W-2 issued by the insurer. 

If you receive a W-2 for a third party sick pay, with no amount in box 1 for wages and the income is reported in box 12 with code of J: Non-taxable sick pay is not subject to taxation. It does not need to be reported on your income taxes. Your employer was required to generate a W2 with the figure, which is why you received it. So basically you do not need to file this return, per IRS.

Disability paid by an insurance company for things like lost wages, loss of limb, or loss of sight may or may not be taxable, depending on circumstance:

• If the premiums were paid by your employer and weren't included in your taxable income, the disability is taxable
• If you paid the premiums out of your own pocket or with payroll deductions that came out of your after-tax income, the disability isn't taxable
• If you and your employer jointly paid the premiums, only the disability amount covered by your employer's payments are taxable

@karmic_caboodle 

[karmic_caboodle]

i worked the first 2 months of 2022 so that is in the w-2 they sent me but it has nothing in box 12 for the 10 months of fmla and short term disability.

what do you mean by premium? 

[DMarkM1]

Disability payments come from an insurance fund that is funded by premiums paid into the fund.  Those premiums are either paid by employers on behalf of employees or deducted from employee paychecks.  Depending on how your employer handled the disability premiums determines the taxability of the benefits from that fund.  

For the taxpayer, one just needs to enter W2 forms received into TurboTax and they will be handled per the information entered from the form.  

If there is an amount in box 1 of the form W2, it is taxable income.  The amount in box 1 will not include any nontaxable disability payments.  Any amounts reported in box 12 with code J show the nontaxable disability payments.  

So if there is no amount in box 1, but there is an amount in box 12 with code J, you do not need to report that W2 information on your tax return as there is no taxable income shown on the W2.  

[karmic_caboodle]

hi! there is no amount in box 12.

[DianeW777]

If you do have taxable short term disability then it is included in Box 1 of your W-2, do not be concerned if there is nothing in Box 12. If you did not receive any other additional W-2(s) then you should file your return with what you have.

The only other way for you to know, if you do not have your own records, is to check with your employer's  payroll department to confirm you have all you need to file your tax return.

[karmic_caboodle]

ok! thanks everyone for the answers.

[surferla25]

I received a W2 for from the 3rd party (insurance underwriter) for my short-term disability payments in 2023. W2 has it marked as "third party sick pay" in Box 13.

I had social security and medicare taxes witheld but not the federal tax.

I paid for my short-term disability via my payroll check (I was a full-time employee). However, i do not know if my employer paid any additional premium for that benefits.

When I entered that W2 in my tax return program, the whole amount of the benefits is taxed. However, since I paid at least part of the premium this should not be the case.

How do I account for the fact that I paid (at least in part) my short-term disability premium in Turbotax?

Should I request a different form from the 3rd party or from my former employer?

Thank you

[MonikaK1]

Contact your former employer if you believe that the W-2 form you received was incorrect or to determine how much of the third-party sick pay was covered by your premium payments.

The taxability of third-party sick pay depends on whether you paid for the cost of the policy or your employer paid for the policy.  If you and your employer jointly paid the premiums, only the disability amount covered by your employer's payments is taxable. 

See this TurboTax help article and this one for more information.

If you and your employer jointly paid the premiums, only the disability amount covered by your employer's payments is taxable.

Box 13 of Form W-2 is where your employer can provide info to the IRS about whether you're a statutory employee, if you're enrolled in a retirement plan, and whether you received third-party sick pay. 

If you paid for the policy:

Your third-party sick pay isn't taxable. You might still receive a W-2, but you don't need to report the W-2 as long as all of the following apply:

• Box 1 – Wages is $0 or blank
• Box 12 has Code J
• Box 13 – Nontaxable sick pay is checked

If you receive a W-2 like the above, don't include it in your return. If you try to e-file and include this W-2, the IRS will reject your return.

If your employer paid for the policy:

Your third-party sick pay is taxable. You'll receive a W-2 with taxable wages in box 1 and include this W-2 in your return.

[ddegnan5]

• Is that in the state of Colorado as well?

[AmyC]

Yes,  generally, CO follows federal taxation. In CO instructions page 12 lists the rules for any allowed subtractions from federally taxed income. Line 4 includes disability for Sch 104AD on page 31. 

Reference:

Disability Insurance - DHR - Colorado

@ddegnan5