Non Taxable FMLA Income

[hillegass76]

My wife (Pennsylvania) was off of work under the FMLA for a few weeks last year. While off, she did not receive pay from her employer, but did receive a reduced income from a 3rd party insurance company. She received a separate W-2 from that insurance company for 2022. There were no federal, state, or local taxes withheld from this income, as it should be exempt. I'm assuming that I still have to enter this W-2  into the "Wages & Income" section, but Turbotax does not recognize this income as non-taxable and continues to decrease our federal refund as a result. What is the proper way to report this income within Turbotax without it being taxed? 

[ThomasM125]

You will need to report the W-2 as you have done, then make an entry to Other Income for a negative amount to cancel out the income. You can do this as follows:

 Choose the Federal option on your left menu bar

1. Choose Wages & Income
2. Find Less Common Income in the list of income sources
3. Use the Show More option to expand the choices and choose Miscellaneous Income, 1099-A, 1099-C
4. Choose the Other Reportable Income option and find Other Taxable Income in that section
5. Enter a description for your adjustment and the amount as a negative number

[hillegass76]

Thanks Thomas. I really appreciate the help. I omitted the W-2 while awaiting an answer and continued working ahead through TurboTax with the intent on going back and making changes before I filed. In my haste, I forgot to go back to make those changes and filed my return without the W-2 being added. I know it shouldn't affect the amount of my refund (or tax due), but what do I need to do now? Do I need to amend the return? My audit risk is quite low. What would the repercussions be if I just left it the way it is and they decided to audit us? The amount of the non-taxable income in question is also quite low. It was just under $1500. 

[Cynthiad66]

You should amend but not before this return is fully processed through the IRS.  The IRS has the information for the W-2 that was omitted and they will sometimes immediately correct the issue or request additional information from you.

If not, it will take them a few months to contact you.  IRS will definitely pick up the missing information but they may or may not contact you.  Still wait to you receive your expected refund or notice of balance due on the original return prior to amending.  Use the link below for instructions on amending.

How to Amend Your Return