Turbo tax calculating tax liability on short term disability wages

[Scott145]

Hello in 2021 i paid for short term disability insurance coverage.  I have paychecks as records showing the deductions from my pay for the specific short term disability insurance coverage.  But it looks like the TurboTax Deluxe program is including the wages in my federal taxable income, below are the specifics:

-I went out on leave in 2021 and thus I received the W2 from the insurer with zero federal income tax withheld in box 2, they also confirmed that no federal withholding will be made unless the receiver of the benefits will be liable to pay federal taxes on wages received.

-When i enter the W2 into turbo tax deluxe i can see my federal tax due increasing as a result of zero withholding.  But when i research this topic since i personally paid for coverage i should not be required to pay taxes on the short term disability wages.  3rd party sickpay is checked in boxes 13 and 14 on the W2.  I've also checked the box on turbo tax screen that this W2 represents "paid family leave".

My question is how do i adjust turbo tax to not include these wages in my federal taxable income?  Since i paid for coverage, it should not be included in my taxable income.  I've gone through the federal review and adjustment screens and it looks like no adjustment was made.

Thanks for your help in advance!!!

[ColeenD3]

Please see this answer from @LinaJ2018

If you paid for the policy: Your third-party sick pay is not taxable.

• You might still receive a W-2, but you do not 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: This box is checked.

[Scott145]

Thank you and quick follow-up.

The w2 i received does not have those attributes marked, but i have pre-tax deductions on my paycheck for ST disability insurance.  Does that qualify as paying for the policy?  Do i need to go back to the insurer and request a corrected W2?

[JulieS]

Yes, if you are paying for the policy through payroll deduction, the benefits should not be taxable and they should be reported as ColeenD3 describes above.  If you W-2 shows your benefits in Box 1, you will need to get the form corrected. 

[Scott145]

Julie thanks so much for your advice , I have been working with the insurance company to obtain a corrected w2, but if I don’t receive a corrected copy before Mondays filing deadlines what are my options?

 Thanks

 Scott

[Scott145]

Hello can i please get some advice on this, what should i do if i dont receive a corrected W2 from the insurance provider by tomorrow ?

Thanks,
Scott

[Cynthiad66]

If you know correct information and how to report, you can report it correctly and hold onto the corrected W-2 for your records.

You can also file an automatic extension to file.

Click HERE for an extension to file.

[Scott145]

Does it matter if the payroll deductions are on a pre-tax or after tax basis? The insurance company is arguing that since the payroll deductions for the ST disability insurance were made on a pre-tax basis that i then have to pay federal income taxes on the wages.  Are there any tax statues or rulings i can show them that would justify the position?

Thanks again,
Scott

[MarilynG]

Generally, any income you receive to 'replace wages' is taxable (like the wages would be). 

If you paid disability insurance premiums pre-tax, the income is taxable.

@Scott145