Hello

I am hoping you might clarify the definition of "Payment, not representing regular wages, including payments made by third party insurers for sickness or disability, are not taxable income for PA Purposes."  This the wording I received from the Pa Department of Revenue which is also what you have cited in your earlier response.

Background: My brother became disabled in February 26, 2020, and could not work. He did not have any siick or other paid leave available, so he therefore went immediately  on short term disability and then to long term disability.  The disability pay he is receiving is provided through a third part private insurance company which is a benefit provided by his old employer to their employees. The employer has paid for this policy.

My brother remains permanently disabled and as of February 26,2021 (one year), his old employer has terminated him since he cannot return to work; however the disability benefits from the third party insurer will continue for some time.

When I received his 2020 W2 from the insurer for his benefits they paid, they are showing the disability benefits paid in Block 1 as "Wages, tips, other compensation", and in Block 13, the "third party sick pay" is noted; there are no other explanatory codes in Block 12 (a) thru (d) as I was expecting. 

I tried to seek an answer from the disability pay insurer and they informed me that the benefits/tax documents are administered thru still another third party and not the insurer.  They will not let me contact the payroll company nor do they appear willing to challenge this classification on the W2.

I fully understand that since my brother has not paid premiums for this disability policy, then the benefits he receives is fully taxable under Federal tax rules; the issue for us is the PA tax treatment.

It seems that everything hangs on the phrase "Payment, not representing regular wages".  I cannot find any definition of this and/or its plain meaning. If I could find the actual meaning of this I might be able to successfully challenge the payroll company to reconsider their interpretation.  Furhter, since my brother has been formally terminated this past February, will this affect their treatment of his disability benefits as "Wages and Income for the balance of  2021? 

I am sorry for the long note, but thought the more detail I can provide the better.

Thank you for your kind consideration.