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.
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