Question

How do I avoid paying income tax on a severance payment for Medical Insurance Premiums that should not be taxed?

Forum|Forum|1 year ago
April 6, 2025
1 reply
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After being laid off, I received a lump sum severance of 20 weeks pay and 20 weeks continuing medical insurance premiums. I used the money to pay the premiums and thus I should not pay taxes on the money. But both the pay and premiums were reported on my W-2. So how do I deal with this in Turbo Tax so I don't have to pay taxes on it. Do I just adjust the W-2 Box 1 to subtract off the premium portion of the payment? Or something else?

LindaS5247

In general severance pay is taxable in the year that you receive it. Your employer will include this amount on your Form W-2 and will withhold appropriate federal and state taxes.

See Publication 525, Taxable and Nontaxable Income below, which states the following: Severance pay.

You must include in your income amounts you receive as severance pay and any payment for the cancellation of your employment contract.

Health insurance premiums are deductible on Schedule A,

Did you have a severance agreement with your employer? I would not adjust your W-2 when inputting it into TurboTax as Form W-2 is transmitted to the IRS. I would contact your employer and discuss with them if you W-2 was issued correctly. If it was not, they should issue you a corrected Form W-2.

Click here for Publication 525 (2024), Taxable and Nontaxable Income

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