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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29569
Experience:  Taxes, Immigration, Labor Relations
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My wife gets disability payments which were paid the

Customer Question

My wife gets disability payments which were paid for by the state. She worked as a state employee for over 20 years. After she stopped working she cashed out her PERF. Because she was disabled before she stopped working she was able to get the disability.
My question is: The state told us her payments were not taxable and should not have anything to do with our yearly taxes.
Is this correct??
Submitted: 1 year ago.
Category: Tax
Customer: replied 1 year ago.
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Expert:  Lev replied 1 year ago.
Hi and welcome to our site!Here instructions about Taxation on the benefit payments for the PERFhttp://www.in.gov/inprs/2796.htmAny contributions to your ASA made with after-tax dollars are considered “tax basis” because you have already paid taxes on those dollars. Mandatory contributions paid by your employer were not taxed at the time they were paid. Therefore, they do not create “tax basis.” Upon retirement, any after-tax contribution (your tax basis) is reported by PERF as non-taxable on the IRS Form 1099-R issued to retired members and the IRS. .So disability payments potentially may be fully taxable, partially taxable or not taxable depending on circumstances.These benefits are reported on form 1099R that was due in January of the following year.The total distribution is reported in box 1 and the taxable portion (if any) is reported in box 2a.Thus if have that form - we may verify whether any part of her retirement benefits is taxable.
Customer: replied 1 year ago.
But these monies were not made by her. They were the county's matching which was put in this fund. Upon my wife's termination she cashed put her 401K.3 YEARS later we found out because she was disabled before getting fired that she could collect disability through the county.All of the monies being paid to us was from the county's or you could say her employers contribution only.
Expert:  Lev replied 1 year ago.
You wrote - monies were not made by her - I am not clear what you meant?Do you mean - that is not earned income? - I agree - so there is no employment or self-employment taxes.However - that is still her income - and there is no ground to exclude that payment from gross income for income tax purposes.Were you able to verify what is reported on from 1099R box 2a?
Customer: replied 1 year ago.
It does give an amount in 2a. Wife did not pay into this fund at all. County and or state paid into this account in case of disability only.That is all it is. Because she became disabled before they fired her the state owes her employer contributed disability.
Expert:  Lev replied 1 year ago.
See for referencehttps://www.irs.gov/pub/irs-pdf/p525.pdfpage 17 - Disability PensionsIf you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer..
Expert:  Lev replied 1 year ago.
So far - the IRS very clear identifies the position.The administrator of that fund - reported that payment as taxable - thus they follow IRS instructions.I am sorry if you expected differently - but there is no way to treat that income as not taxable.If someone promised you that the payment would not be taxable - you may go back to that person and ask for supporting references and reasoning.But otherwise - you will need to report that payment as taxable..I appreciate if you take a moment to rate the answer.Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all tax related issues.