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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28405
Experience:  Taxes, Immigration, Labor Relations
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I have been rated 37 % permanent disability. Workmans Compensation

Customer Question

I have been rated 37 % permanent disability. Workmans Compensation Settlement. I work for the department of corrections. State of ca.How will this rating affect my taxable Income when I retire This year. It will be a full retirement Not disability retirement.
Submitted: 4 years ago.
Category: Tax
Expert:  Lev replied 4 years ago.

LEV :

Hi and welcome to Just Answer!
Here are general rules - if you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A until you reach minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Report the payments on lines 16a and 16b of Form 1040 or on lines 12a and 12b of Form 1040A.

Certain military and government disability pensions are not taxable. You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service.

LEV :

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.
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.
The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury.
So rating itself doesn't directly affect if your disability pension is taxable - but it might have indirect affect in case part of your disability pension is treated as workers' compensation.
Also - that is not something you could decide - but the administrator of your pension should determine if part of your disability pension may be excluded from taxable income and should report only taxable part on form 1099R. So I suggest to discuss the issue with the administrator of your pension fund.

JACUSTOMER-3k7h7x0p- :

my retirement system is cal pers. I am retiring at age 55 with over 30 years service. It is not a disability retirement. However my understanding was that 37 percent of my income would be not taxed.due to this job induced permanent disability.

Expert:  Lev replied 4 years ago.
According to your information - part of your retirement income MIGHT be not taxable ONLY if that part is paid under a statute that provides benefits only to employees with service-connected disabilities.
Because that is NOT a disability retirement - but retirement benefits you receive based on your age, length of service, or prior contributions to the plan - your retirement benefits are fully taxable. In this case disability rating has no effect.
Sorry if you expected differently.
You may contact the administrator of your retirement account and verify that they will report all your benefits as taxable.
Expert:  Lev replied 4 years ago.

Unfortunately - you were informed incorrectly.

You may not exclude from your taxable income part of your regular retirement benefits based on disability rating.

I understand that you expected a different answer - and feel sorry for that.

You may contact the IRS directly and confirm the information I provided - _1_800_829_1040_

Please do not shoot the messenger.

My goal is to provide EXCELLENT service.

I will address all your concerns and tax related issues.