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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13343
Experience:  15years with H & R Block. Divisional leader, Instructor
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Lev, and I am a former US Army Vet and also a retired police

Customer Question

Hi Lev, my name is***** and I am a former US Army Vet and also a retired police officer with disability pension due to a work related injury forced to retire after 22 1/2 years of service. My tax man says I get to claim only half my actual retirement pension income until my normal retirement date of Jan 2015. He thinks after that I have to pay taxes on my full police disability pension. I was told by other officers that they thought my disability pension was tax exempt for life? Is this true in Connecticut?
Submitted: 10 months ago.
Category: Tax
Expert:  Robin D. replied 10 months ago.

Hello

The taxable portion of any of your pension is based on if the payment is for years of service or the disabled condition.

26 U.S.C. 104(a) provides: "Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include -

(1) amounts received under workmen's compensation acts as compensation for personal injuries or sickness; ***."

However, 26 C.F.R. 1.104-1(b) provides that 26 U.S.C. 104(a)(1) does not exclude as income "***a retirement pension or annuity to the extent that it is determined by reference to the employee's age or length of service, or the employees prior contributions, even though the employee's retirement is occasioned by an occupational injury or sickness."

In addition, the exclusion "*** does not apply to amounts which are received as compensation for a nonoccupational injury or sickness to the extent that they are in excess of the amount provided in the applicable workmen's compensation act or acts. ***."

The portion of your disability benefit that is based on your service will be taxable if your benefit is determined to be in the line-of-duty. After you reach retirement age you can then begin to count your cost into the pension.

Customer: replied 10 months ago.
Injured police officers regardless of length of service when deemed disabled and no longer able to work as a police officer due to an on the job work related injury get their full pension. I was injury at work on the job and was forced to leave due to my injury and was unable to work as a police officer after 22 1/2 years on the job at the same time three other officers who were also injured having 5, 7 and 10 years on the job had been forced to retired disabled got the same exact pension I got. 4 of us left all together disabled and we all received the same full pension as if we all worked 25 years for normal patrolman retirement pay. So you really never answered my question and you say in your last paragraph after I reach retirement age I can then begin to count my cost into the pension? Retirement age after my normal 25 years for regular police retirement? Count what cost? Please explain further....is my disability pension which forced me to retire early taxable based on this current info?
Expert:  Robin D. replied 10 months ago.

Your cost in the pension would be your contributions. The amount that you put in yourself would be the cost.

When you retire on disability, you generally must include in income any disability pension you receive under a plan that is paid for by your employer.