How do I enter my police disability income as non-taxable?

[Fotoman1]

I have a workman's compensation injury that resulted in a disability retirement.  How do I enter it as not subject to taxes?

[IreneS · Accepted solution]

First make sure that Box 7 of your 1099-R contains code 3 (disability).  After you enter the information from your 1099-R, you will see a series of questions.  Be sure to indicate that you were a public safety officer.

To enter your 1099-R in TurboTax:

1. Click on Federal > Wages & Income.
2. Scroll down to the Retirement Plans and Social Security section and click on the Start/Revisit box next to IRA, 4701(k), Pension Plan Withdrawals (1099-R).  [See Screenshot #1, below.]
3. If you've already entered one (or more) 1099-Rs, you will see a screen Your1099-R Entries.  Click on the link Add Another 1099-R.  [Screenshot #2]
4. If you haven't already entered a 1099-R, you will see the screen, Your 1099-R. Click Yes and then Continue.
5. You can either import your 1099-R or click on the I'll type it in myself box.
6. If you select to enter the information yourself, continue through the screens, answering the interview questions.

[Fotoman1]

Box 7 is marked Distribution Code 3 but box 2a also shows the amount as taxable.  What if I was to go to box 35h and exclude it that way?

[IreneS]

It should still be excluded on your NY return even if box 2a shows the amount as taxable.    What button did you select on the "Where is This Distribution From?" screen?

Does the amount appear on line 26 of the IT201 (subtractions)?  If it doesn't click on line 26 to highlight it and then click on the magnifying glass icon.  This will take you to the Pensions/Annuities/IRAs Worksheet. Make sure the "Qualifies for government exclusion" box is marked at the top of the form.

[Fotoman1]

None of these menu items appear on my Federal Tax Return.  I am in a no state tax state so I'm kind of confused about your recommendations.

[IreneS]

I'm sorry!  I was assuming you were a NY resident, and apparently you're not.  That explains the issues you're having!
1.  If NY is not your resident state, then on the 1099R, in Box 13 enter NY.  Click Continue.
2.  On the "Select Your State" screen, NY should be checked.  Click Continue.
3.  The next screen should now be "Where is this Distribution From."  You can then select the New York State pension plan you're enrolled in.
4. Your pension should now be excluded from NY tax.

[Fotoman1]

My retirement income is from Connecticut but I am a resident of Texas, a no state tax state.
I just need to know how to handle the non-taxable disability income on my Federal Tax Return not any state returns.

[Fotoman1]

Okay, Let me clarify this income.  It is a disability income received for an on the job injury as a law enforcement officer.  As such it is not susceptible to income taxes as it is considered "workman's compensation".  How do I enter it into Turbo Tax so that I am not taxed.  I am not subject to any State Taxes.

[IreneS]

Do not include it in your income unless you deducted medical expenses related to the claim.  Please see this FAQ:
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/replies/3302455">https://ttlc.intuit.com/replies/3302455</a>

[jayball102]

If you are not subject to taxes on your Police Disability Pension I am confused on filling out the form.  I clicked 3 (disabled) on box 7.  Do I enter line 1 and 2a?  If I enter those it shows that I owe taxes but I am exempt from tax on this disability pension?

[dieselrob]

Did you ever get this figured out?  I'm in a similar situation now and wondering how to keep the Disability Pension (firefighter) from being federally taxable as income.  Thanks!

[joebrehler]

Yeah, it turned out my employer had the W-2 incorrectly issued, as 2a should have been blank. That fixed it, but it also flagged my return for audit due to claiming no taxable income, even though it’s legit. My return is going to be delayed another 60 days while they review. I filed back in Feb.

[Fotoman1]

Yes but this year TT handled it using the form for Standard Deduction.  I just answered the questions it asked and went from there.  Last year I had to check box 16 or 16a and add a comment.  Make sure you have all your paperwork and submit it with your return.

[dieselrob]

Thanks!

[graylady]

My husband reached retirement age by the time he started collecting Disability Retirement (Box 7 contains 3-Disability) as a police officer. We have used TT and never paid Federal Income Tax on it. According to IRS Publication 907 (2019) we don't pay Federal Taxes. TT 2019 keeps counting it as income, even though I select he is of retirment age and a police officer and started collecting it prior to 2018.

How do I get this to be non-Federal taxable?