Sickpay W2 Confusion: Report or Don't Report

[TheConfusedTaxGuy]

My wife recieved sick pay while on maternity leave from a third party short term disability plan that she paid into via her job using payroll deductions from her salary. The W2 we reiceved shows the amount that was paid out to her in Box 1 with no federal taxes taken out, just social and medicare taxes. Box 12 is what confuses me. In box 12 A it is list code "J" then next to it is the exact dollar amount that is in Box 1. In the W2 instructions it states a code of J in box 12 denotes "Nontaxable Sick Pay". I've researched and people have stated that when you get a W2 from a third-party sick pay payments that you pay into, Box 1 is supposed to be blank and box 12 A will have a"J" code in it denoting the payments are  non-taxable. It's also suggested that due it being non-taxable to not report it and it's meant more informational than for the purpose of filing. Given mine has an amount in Box 1 with a dollar amount, but that same amount shows in Box 12 as Non-Taxable, do i still report this on my taxes? Will i taxed even though code J is listed? 

[MichaelG81]

A few questions, and I have our answers. In order to avoid putting the form in your taxes, you must have a "0" amount in Box 1. This seems not to be the case for you. Here are some suggestions. Of course because of that Code J, it makes it non-taxable, but must reported because it has a dollar amount different from $0 in Box 1.

It depends on whether you paid for the cost of the policy or your employer paid for the policy.

Since 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 – Third Party 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. However, this is not the case for you, please file it with your return. 

@TheConfusedTaxGuy

Edited 01/31/2023 | 08:45 PM PST

[TheConfusedTaxGuy]

Thank  you for the reply. Yes she did pay into  the policy but according to this W2 there is an amount in Box 1, Box 12 has Code J but Box 13 has Third Party Sick Pay checked vs Nontaxable Sick Pay as  you stated. I may have to validate the source of his W2, could be pay from another policy her employer could have also had as an employment benifit. 

[MichaelG81]

@TheConfusedTaxGuy  Third Party Sick Pay is what I meant in Box 13. Just for clarification.

[Jjohnson81]

This same thing just happened to me. And I’m unsure if I need to file the w-2 or not. Did you ever figure this out?

[RobertB4444]

If there is an amount in box 1 then you should indeed enter the W2 into your tax return.  

However, the amount in box 1 could be an error.  You might contact the issuer and see if it should be changed.

@Jjohnson81