If a code 3 in box 7 and he is under the minimum age that he could have retired had he not been disabled then it should be on line 7 as wages because it is a wage replacement.
That can be an advantage for many because it qualifies as earned income for the EIC credit and can be used for IRA contributions.
Once he reaches retirement age then it becomes a line 5a/b pension.
**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**
