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ter2b2
Level 2

TurboTax not handling 3rd party Paid Family Leave correctly. How to fix?

My wife's company uses a 3rd party(LINCOLN LIFE ASSURANCE) to administer paid family leave (maternity leave, in her case). LINCOLN sent us a W-2 form with:

  • Box1 blank
  • PFL amount entered in Box12 using Code J
  • Box13 checked for Third-party sick pay

I entered the W-2 info in TurboTax and then selected the box to designate PFL as being included.  I expect that the PFL amount in Box12 needs to be taxed federally. However, adding this W-2 did not change my wife's income and had no impact on our federal return.  How can this issue be addressed? (I wish I could truly just skip paying the tax, but surely the feds will want this money)

6 Replies
BillM223
Employee Tax Expert

TurboTax not handling 3rd party Paid Family Leave correctly. How to fix?

First, what state are you in?

 

Second, Code J means that the pay is not taxable on the federal level, which makes me wonder if your employer filled out the W-2 correctly, as Paid Family Leave is treated on the federal return the same as unemployment, which is also taxable.

 

Here are the instructions for your employer in completing your W-2: "Code J—Nontaxable sick pay. Show any sick pay that was paid by a third party and was not includible in income (and not shown in boxes 1, 3, and 5) because the employee contributed to the sick pay plan. Do not include nontaxable disability payments made directly by a state." See W-2 Instructions.

 

The way your W-2 is coded, the PFL will not be taxable. I recommend you take this to your HR department and ask them if you have PFL or truly non-taxable sick pay because you paid the premiums for the insurance contract with after-tax dollars. If they realize that they made a mistake, ask for a corrected W-2, because you don't want to file with this W-2.

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ter2b2
Level 2

TurboTax not handling 3rd party Paid Family Leave correctly. How to fix?

Thank you, BillM, for the information.  I am living and working in California. I will follow up with HR/and or the 3rd party to determine if there is any mistake on the 3rd party W-2.  I'll report back.

BillM223
Employee Tax Expert

TurboTax not handling 3rd party Paid Family Leave correctly. How to fix?

Yes, and I just reread your original post and realized that the W-2 came from Lincoln Life, not your employer, but you should start with your employer anyway, because they need to know/find out the issue with the Lincoln Life W-2.

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ter2b2
Level 2

TurboTax not handling 3rd party Paid Family Leave correctly. How to fix?

This week the 3rd party company (Lincoln) admitted to our HR that they made mistakes on the W2's. I'm expecting an amended W2 to be mailed to us this month. I have not filed my taxes yet, and I am planning to wait until after I get the amended return to do so.  Seems the problem is NOT with TurboTax.

ter2b2
Level 2

TurboTax not handling 3rd party Paid Family Leave correctly. How to fix?

Ok. Lincoln sent us a corrected W2 for my wife's maternity pay.  About the half the total pay went in Box1 this time.  About half of her maternity pay turned out to be federally taxable.  Lincoln sent corrected returns to everyone in our company that was impacted over the past 2 tax years.  They offered reimbursement of tax prep fees to people who need to file amended returns.  In this case, there was no problem with TurboTax. This problem was on Lincoln and their W2 preparation.

 

gloriah5200
Expert Alumni

TurboTax not handling 3rd party Paid Family Leave correctly. How to fix?

Thank you so much for correcting what you had assumed.

 

I am glad that Lincoln was also willing to correct the situation so you could file your return.

 

Unfortunately, as far as whether disability or a sick pay claim is taxable or not depends on a lot of details...who paid the premiums for the short and long term disability is a big factor that can affect the box 1 amount, so if the issuer doesn't know how much should be in that box it is difficult for someone else to make that determination.

 

[Edited 03/28/*2021|4:42 pm pst]

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