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Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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Is Disability Retirement taxable?

Resolved Question:

Distribution Code 3 on a 1099-R indicates a Disability Retirement. My tax software, ProSeries, excludes the amount from taxable income unless block 2a is filled in with a taxable amount. My question is this: Is Disability Retirement taxable? Thanks.
Submitted: 7 years ago.
Category: Tax
Expert:  Merlo replied 7 years ago.
Box 2a is really more of an informational box. It really does not determine if the amount is taxable or not. It is used as more of a guide for the recipient of the money in helping the recipient how to report the funds. In many cases, that box is intentionally left blank, so you cannot necessarily count on the information reported in box 2a.
If the funds you received are from a normal retirement plan that are being paid out early due to disability, then those funds are totally subject to tax, regardless of what is entered in box 2a.
If instead of being disability retirement funds, these were payments being made for short term or long term disability, with the intention that at some point you would return to work, then the benefits might possibly be not taxable. But if this is strictly early retirement benefits that you receive due to disability and now being retired, the entire amount is subject to tax.
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