I'm a retired firefighter with a disability pension. After entering my information from my 1099-R, I notice I owe a substantial amount of federal tax. Public service disability pensions are supposed to be federally tax free. Why is Turbo Tax holding out federal taxes on my disability pension?
Check the distribution code entered in the interview questions. For disabilities, distribution code 3 is required. If your form does not have distribution code 3 listed and your income was for disability then you will need to contact the issuer and have the 1099-R corrected. If your distribution code is correct, you will receive an interview question asking, "was this pension received from employment as a public safety officer such as a law enforcement official or fire fighter." Make sure to click yes for this question.
My 1099-R has distribution code 3. When I click next to move on Turbo Tax immediately takes out unpaid federal taxes on the amount, even though my pension is an on duty disability. I’m also passed the required retirement age so no federal taxes should be withheld. When I move onto the follow up questions and check yes for the question “was this pension received from employment as a public safety officer……….,” the owed federal taxes remain. What am I doing wrong?