Who paid the premiums for this disability coverage? Were they paid by you or by your employer?
If the employer withheld the premiums from your paychecks, were the premiums withheld on a pre tax or after tax basis?
On the W-2 form that you received, do they show withholding any amounts for SS or Medicare taxes?
Hello again vteach,
When the employer pays the premiums for this type of benefit and those premiums are not included in your taxable income, then the benefits you receive under the policy are taxable income to you. That is not a decision that can be made by the school district. Those are the rules of the IRS. And in fact if these were not taxable income to you, then no W-2 form should have ever been issued.
The part that is strange is that they did not withhold SS and Medicare taxes. With disability benefits it is not unusual that they do not withhold federal or state taxes, but they still should withhold SS and Medicare taxes, and those taxes should also appear on your W-2 form.
Something is very odd about your entire situation here and I think you will need to have your financial person recheck the information you were given. Ask them to explain to you why a W-2 was issued if this is not taxable income, because a W-2 should never be issued if the income is not taxable. And if the premiums were paid for by the school and those premiums were not calculated as part of your taxable income, then you most definitely owe tax on these benefits. But then at the same time they should have been withholding SS and Medicare taxes from your benefits, and then the school should have been matching those taxes the same as they do when you receive regular wages.
Thank you vteach
Box 13 is for informational purposes only. It is always checked when a third party such as an insurance company pays benefits to an employee of one of the firms they provide coverage for, but it has nothing to do in determining whether or not these benefits are taxable to you.
Was the W-2 form issued to you by the school district or by the insurance company?
Unfortunately without actually being able to talk to the parties involved, I can give you no concrete explanation of why this was issued. It simply makes no sense. When you receive disability payments that are taxable to you, even thought those payments may be made by the insurance company, the employer is the one who is supposed to include them in your W-2 form. And it also makes no sense that they withheld no SS and Medicare taxes from the payments, unless in fact these really are non taxable benefits.
I am afraid you are going to need to contact Cigna and possibly enlist the help of your employer in getting them to void this form, because once that W-2 is issued to you, the IRS considers it taxable income, and there is no way for you to simply not include that as taxable income on your return. It just appears that someone dropped the ball here all around and issued an incorrect form.