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Tax.appeal.168
Tax.appeal.168, Tax Accountant
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Experience:  Nearly 30 years of varied tax industry exp. Tax Biz owner
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Hello, I am a retired Firefighter with the City of Pittsburgh.

Customer Question

Hello, I am a retired Firefighter with the City of Pittsburgh. I retired on a disability pension due to injuries sustained extinguishing a structure fire in 2007. At the time, I was told by the pension office that the income I received from my pension was tax free because I was injured in the line of duty. I have never had a problem with that until about a week ago. The IRS sent me a letter stating that they wanted me to pay taxes on the income I received from my pension in 2010. They gave me four weeks to pay or reply and decline the charges. Does anyone have any documentation that would support my claim or was I misinformed and now I have to find a way to pay back the money for not only 2010, but the other 4 years also? Any help is greatly appreciated.

Bill
Submitted: 2 years ago.
Category: Tax
Expert:  Tax.appeal.168 replied 2 years ago.
Welcome, THANK YOU for using Just Answer. My goal is to help make your life...a little...LESS taxing.

In brief, from what you have written, it appears that part of your pension is taxable and part of it is not. SEE BELOW:

------------------------------------------------

The following information is from IRS Pub 575.

Disability pension. If your disability pension is paid under a statute that provides benefits only to employees with service-connected disabilities, part of it may be workers' compensation. That part is exempt from tax. The rest of your pension, based on years of service, is taxable as pension or annuity income.

Pension based on years of service.

If you receive a disability pension based on years of service, in most cases you must include it in your income. However, if the pension qualifies for the exclusion for a service-connected disability (discussed earlier), do not include in income the part of your pension that you would have received if the pension had been based on a percentage of disability. You must include the rest of your pension in your income.

-------------------------------------------

Workers' Compensation

Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act.

REFERENCE SOURCE (IRS Pub 525):

http://www.irs.gov/publications/p525/ar02.html#en_US_2011_publink1000229331

Please let me know if I can be of further assistance to you regarding this matter.

Thank you again for using JUST ANSWER.

Expert:  Anne replied 2 years ago.
Hi
Different expert here.
As a Federal Employee, you are subject to different rules than people who work in the private sector.As such, you are covered under the Federal Employees Compensation Act, which states that if you receive payments for personal injuries or sickness from performing your duties, then these payments are handled as Workers Compensation, meaning they are not taxable.

You may find this information on page 17 of 2011 Publication 721 Tax Guide to U.S. Civil Service Retirement Benefits

I hope this helps
Customer: replied 2 years ago.
Relist: Incomplete answer.
I am trying to find any information specific to tax free pension for a Professional Firefighter forced to retire due to injuries sustained in the line of duty. I do not collect any workers compensation. This is strictly money from a disability pension. I was informed that in that specific case there were exemptions. Everything I read points to that, but I cannot find specific documentation to send to the IRS.
Expert:  Tax.appeal.168 replied 2 years ago.
Hello again,

Original expert here.

Sorry for the delay. As I was not able to locate an answer to your situation, I took the liberty of calling the Fire fighter pension fund office in Pittsburgh, and they referred me to the following IRS document.

http://www.irs.gov/pub/irs-wd/0123004.pdf

The following paragraph from that document appears to relate to your situation.

Thus, disability benefits paid under Sections 54-2-11,12 and 13 of the Statute to a disabled member prior to the time of conversion from duty disability retirement to regular service retirement (the earlier of when the member would have accrued twentyfive (25) years of creditable service had the member continued in active service or on the date that the member reaches age sixty) are excludable from gross income under
section 104(a)(1) of the Code. You can find the code language at the following link:

http://www.taxalmanac.org/index.php/Treasury_Regulations,_Subchapter_A,_Sec._1.104-1

Again, sorry for the delay. Thank you again for using JUST ANSWER.
Expert:  Anne replied 2 years ago.
Hi

2nd expert here. It states on page 16 of 2011 Publication 721 Tax Guide to U.S. Civil Service Retirement Benefits that the money you receive as retirement is taxable as wages until you reach minimum retirement age, which for a fireman is 50 with 20 years of service You must also apply for SS disability, even if you are under the age of 62.

On page 17 of the IRS pub under How To Report, it states that if you are under retirement age, then you must report your benefits on your Federal 1040, line 7.

So according to the IRS, depending on your circumstances, your retirement disability may or may not be taxable. I have given you the information as stated by the IRS, and you will have to apply it to your situation.

I sincerely XXXXX XXXXX you meet the criteria for these distributions to be tax free.

Thank you and I hope this helps.
Expert:  Tax.appeal.168 replied 2 years ago.
While the IRS provides a broad view of information for various situations, there are some situations that just don't apply. As I stated in my 2nd response, the IRS document reference was given to me by the office of the...City of Pittsburgh Fire Fighter Pension Fund (from the horse's mouth so to speak). I would hope that they know what IRS information relates to their pension fund. I would suggest calling them yourself to verify the information that was provided to me from them. Their phone number is(NNN) NNN-NNNN The Rev. Rule that they referred me to Rev. Rule 80-14, which when researched led me to the document that I provided to you.
Expert:  Anne replied 2 years ago.
I think that calling them would be a very good idea, since the reference material they referred to speaks to people with 25 years of service and workman's comp. Your specific question re: whether or not your disability pension is taxable or not is unclear in the reference they gave the above expert if you do not meet the 25 years of service or minimum age (50) with at least 20 years service as referenced in pub 712.

Again, I wish you the best of luck, and I hope that you meet the criteria for this to be non taxable .

Thank you
Expert:  Tax.appeal.168 replied 2 years ago.
Hello again,

I felt impelled to do a bit more research to find clearer, more definitive language relating to your situation. My search led me to a document that addresses various types of disability benefits. In that document, the following information regarding firefighters is stated:

146.32 Firefighters. Duty disability payments

paid under a municipal statute to disabled firefighters prior to their reaching normal retirement age are excludable from gross income. If the disabled firefighter dies prior to normal retirement age, the benefits paid under the statute to the surviving spouse arc also excludable. §§1.61–2, 1.104-1. (Secs. 61, 104; 4 Code.)
Rev. Rul. 80-14, 1980-1 C.B. 33.

The above section confirms the information that I provided to you earlier that the pension office referenced to me.

-------------------------------------------

146.33 Firefighters; service-connected disability. A pension received by a disabled firefighter under a state statute that creates a rebuttable presumption the disability was service connected is excludable from gross income to the extent the pension is not attributable to length of service. §1.104-1. (Sec. 104, ’86 Code.)
Rev. Rul. 85-105, 1985–2 C.B. 53.

-------------------------------------------

REFERENCE SOURCE:

http://www.unclefed.com/Tax-Bulls/IndexDigest/Disabenf.pdf

As the IRS is saying that the pension is taxable, and based on the above information, it may not even be necessary to call the pension office, however, calling the IRS and referencing this information should be your starting point. You can either call the number located on the notice that you received, or if there is not a number, you can call 1-800-829-1040. You probably contacted JA to avoid having to deal with the IRS, or put forth much effort, but sometimes situations relating to tax matters are not always cut and dry, and there are exceptions to every rule. At least now, you have a starting point, and you won't be addressing the issue with the IRS blindly.

Thank you again for your patience and for using JUST ANSWER.

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