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Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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I live in New York but I receive my only income (disability)

Resolved Question:

I live in New York but I receive my only income (disability) from the State of Alaska. Alaska residents do not have to pay State taxes. Do I have to file and pay New York State income taxes?
Submitted: 5 years ago.
Category: Tax
Expert:  Merlo replied 5 years ago.
Hello turbo,

What is the source of your disability payments? Is this from disability insurance that your employer paid for or is it from a plan where you paid the premiums?

Customer: replied 5 years ago.
My disability is because of Lupus which in turn caused Mixed Connective Tissue Disorder, Renal Failure, Coronary Heart Disease, Rheumatoid Arthritis, Osteoporosis and Glaucoma. The income is from disability insurance for which I paid the premiums.
Expert:  Merlo replied 5 years ago.
Hello again turbo,

If you are the one who paid the entire premium for this disability coverage, then the benefits you are receiving are not taxable income by the IRS, and they are also not taxable in the state of New York.

As a resident of New York, you would have to report any taxable income that you received from another state, and you would be given credit for any state tax that you paid to another state. But in this situation, your benefits are not taxable if you paid 100% of the premiums for this coverage.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.
Customer: replied 5 years ago.

I am surprised at part of your answer because I have been filing IRS taxes from the start of my disability to the present time and I wasn't aware that I shouldn't be filing. I receive W-2 forms every year.

Expert:  Merlo replied 5 years ago.
Hello again turbo,

Was this disability plan something that you purchased on your own or did you purchase this through your employer?

If you purchased this through your employer, did you pay 100% of the premiums? If you paid the premiums through your employer, were the premiums reported under a cafeteria plan, meaning the premiums you paid were not taxed?
Customer: replied 5 years ago.

I am surprised at part of your answer because I wasn't aware that I do not have to file

IRS tax returns. I have been receiving W-2 Forms and filing IRS tax returns since the start of my disability.

Expert:  Merlo replied 5 years ago.
Hello turbo,

Who did you purchase this disability insurance through? Did you purchase this on your own or was it through your employer?

If it was through your employer, did you pay 100% of the premiums?

If you paid the premiums through your employer, did they deduct these premiums from your taxable income?

I need the answers to these questins before I can further comment on your siutation.

Customer: replied 5 years ago.
The insurance is with Aetna Insurance Company but was purchased through my employer. I paid 100% premiums and the amounts were deducted from my taxable income.
Expert:  Merlo replied 5 years ago.
Hello again turbo,

Thank you for the additional information.

Since the premiums you paid for this disability insurance were not included in your taxable income, then the benefits you are now receiving would be taxable, to both the IRS and in the state of New York. I did not understand entirely from your original post that the premiums you paid were excluded from your taxable income, and that does make a difference on whether or not your disability benefits are taxable with the IRS.

As a resident of the state of New York, you are required to report all of your taxable income as shown on your IRS return, regardless of what state the income actually came from. If you paid state tax to another state other than New York on the same income, then New York would give you credit for that on your New York state return, but in this particular it does not sound like you are paying tax to any other state on this disability. That being the case, you would need to include this in the income you report to the state of NY.

Thank you for using JA and let me know if you have further questions.



Customer: replied 5 years ago.
I'm sorry but I think you misunderstood me. The premiums were a part of the taxable income.
Expert:  Merlo replied 5 years ago.
Hello again turbo,

Do you have a copy of the last W-2 form you received? If so, can you tell me if any amount is entered in Box 1 and Box 12A?

If there is an amount in Box 12A, what is the Letter Code shown in that box?
Customer: replied 5 years ago.

Hello again,

 

Sorry to be such a pain in the neck. In Box 1 there is the amount for wages etc. There isn't an amount in Box 12A but there is the letter J.

Expert:  Merlo replied 5 years ago.
Hello again turbo,

At this point I am going to suggest that you contact either Aetna or your past employer or both, for two reasons. First, you need to clarify that the premiums you paid over the years for this insurance were included in your taxable income. It might be possible that your employer was not including this amount in your taxable income and you were not aware of it. If they were including these premiums in your taxable income, then they are incorrectly reporting these benefits to you as being taxable.

Basically this is how it works. If you have disability insurance through your employer and your employer pays the entire premium for that insurance, then any benefits you end up received are taxable. If you and your employer each pay a portion of the premiums, then the percentage your employer paid for is taxable, but the percentage you paid for is not taxable.

If you paid 100% of the premiums, and if those premiums were included in your taxable income, then none of your benefits are taxable. If you paid 100% of the premiums, but the premiums were excluded from your taxable income, then all of your benefits are taxable.

If you did in fact pay the entire premium cost for this coverage and all of the premiums were included in your taxable income, then you would still receive a W-2 form, but the amount you are receiving should be reported in Box 12a with a code of "J" for non-taxable. The amount should not be reported in Box 1.

If after speaking to Aetna you find out that they have been incorrectly reporting this as taxable income, you should file amended returns for the last 3 years to get back any tax money that you paid in or to claim any additional refunds or credits that you might be due.

There are a number of IRS publications which address this issue, but some of the language can be confusing. So instead, I am giving you a link below to an article which addresses the issue of disability benefits and how they are taxed, which I think is easier to understand. I think this article will help clarify the information I have just given you.

If this was helpful please press the Accept button. Positive feedback is also appreciated.

Thank you.

http://74.125.95.132/search?q=cache:ealEQcoaKxQJ:www.unum.com/Employees/WhatToExpect/FAQs.aspx+w-2+disability+not+taxable&hl=en&ct=clnk&cd=6&gl=us


Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience: 25+ years tax consulting. Specializing in returns for US citizens living abroad
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