My husband receives disability retirement from the State of Maryland. He became disabled before minimum retirement age and is currently under retirement age. State of Maryland put a 2 in box 7. According to IRS instructions his income must be entered on line 1 until he reaches retirement age. It is considered earned income and we get the earned income credit.
We contacted them to ask them to change the code to 3 for disability. They told us the code 2 is right and refuse to change it. They claim the only people who they can use a 3 for are ones who receive Accidental Disabilty(injured on the job). He receives ordinary disability due to a health condition. They said the IRS told them they cannot use code 3.
This contradicts what the IRS wants us to do for taxes. On turbo tax entering a 2 does not give the option to select that he has retired early dues to disability. Only code 3. I spoke to an accountant who said the 2 is wrong and puts the income on the wrong line. Does anyone know of this tax law? Is this a special arrangement that Maryland has with the IRS?
