W-2 Question

[peggysioux]

Taxpayer received W-2 from his union's welfare fund for sick pay totalling $1250. There is no state ID # or state wages in box 15 and 16. Taxpayer advised me that his union told him that these wages were not taxable to state. What is the determining factor in whether sick pay is taxable to state or not.

[Koss]

Sick Pay

The determining factors are:

(i) what state your client lives and works in, and

(ii) what planet the payroll clerk was on when he spoke to your client.

Most states have standardized their method of determining taxable income, so that the state tax return always begins with federal AGI--even if the taxpayer is a part-year resident or nonresident.

If the state in question begins its tax return with federal AGI, and it does not tax sick pay, then it will get backed out with an adjustment of some sort. For example, the Ohio return begins with federal AGI, but there is adjustment to subtract the taxable portion of social security benefits.

You might want to do a reality check by looking at the instruction book for the state tax return in question.

Perhaps the state treats it as some sort of disability insurance benefit. If the taxpayer is paying into the welfare fund, then that makes it start to sound like he's paying the premiums for his own disability insurance... and that might make the benefits nontaxable somehow.

Burton

[peggysioux]

W-2

The taxpayer lives and works in California and the California return does begin with the Federal AGI. However, the only sick pay that I see that California subtracts out is sick pay that is received under FICA and Railroad retirement. The payroll person that the taxpayer spoke with said they deal with many states and it is never taxable to the state. This is a W-2 from the National Automatic Sprinkler Ind. Welfare Fund out of Landover, MD. I think it should be taxable to California, but wanted to confirm with other tax preparers.