Should my long term disability benefits be taxed in Illinois? No state taxes were withheld for LTD only partially funded by my employer.

Forum|Forum|4 years ago
February 9, 2022
3 replies
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My long term disability benefit was partially funded by me and the rest was employer paid. I was under the impression IL did not tax LTD, even though the portion paid by my employer is federally taxable. How do I reflect that in Turbo Tax?

TurboTax Deluxe Online

ThomasM125

You should enter your form 1099-R that reports the distribution in the federal section of TurboTax, in the Wages and Income section, then Retirement Plans and Social Security, then IRA, 401(k), Pension Plans (1099-R). The taxable amount should be listed in box box 2(a) and the code in box 7 should designate it as being a disability pension (code D.)

When you prepare your state tax return for Illinois, you will see a section that says Here's the income that Illinois handles differently. In that section there is an option to work on your retirement income, you need to work through that section to insure that your pension income isn't taxable on your Illinois tax return.

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double_g_76Author

The LTD insurance benefit was paid out on a W-2.

DaveF1006

According to this State of Illinois website, Disability benefit is considered income and is subject to federal income taxes. However, disability benefits are not subject to Illinois state income taxes.

Here is how to make it non-taxable in Illinois assuming the W2 in question just reported the LTD benefit and no other income.

Begin by preparing your Illinois state return.
When you get to the page that mentions Here's the income that Illinois Handles Differently
Scroll to the bottom of the page to miscellaneous>any other additions>start
For a description, type in LTD benefit paid on W2-Non taxable in Illinois
Enter the amount of the W2 as a negative number. For an example, if the amount is $10,000, you will enter it as -10,000.

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double_g_76Author

First, thank you for responding! When I try to enter a negative number, I receive an error that it must be at least zero. Do you know a way around this?

DianeW777

Another way to handle it that should resolve the issue is to go back to the W-2 and change the State amount (Box 16) to the amount that should be taxed by Illinois (IL). The key is to report the accurate taxable wage to IL.

As indicated by our awesome Tax Expert @DaveF1006 the disability benefits are not subject to Illinois state income taxes

Please update if you need further assistance.