10996 code3

[rwm221]

I have a client that received a payout from NJ Pension. There is amount in box 1, box 2 is 0 box 7 is a 3. He is disabled, but he is also 62. I thought it was not taxable if he is at a minimum retirement age.

Thank You

[rwm221]

Sorry 1099R

[Uncle Sam]

Hope this helps you - https://www.nj.gov/treasury/taxation...rent/1040i.pdf See P. 20

[Rapid Robert]

This question appears to be about federal taxablility (since you have to figure the federal return first before the state return).

My only experience with something similar is the widow of an ex-cop, who gets a similar 1099-R from the police agency, over $50K annually tax free. The IRS always holds up the refund and sends a letter asking for a copy of the 1099-R, but eventually lets it through. I am baffled as to why this is tax free, since the widow is not disabled, and even her late husband did not have any obvious physical disability when I knew him as a retiree.

" I thought it was not taxable "

That's what the 1099-R is reporting, right? So what is your question?

[spanel]

Code 3 reflects disability as in no 10% penalty and report on 1040 line 1 wages.
Once 59.5 this should change to code 7.

I'm not sure why it would be non taxable unless they have non deductible contributions.

Is the box x for taxable amount unknown? Is there a 0 in box 2 or blank?

Chris

[Uncle Sam]

I thought the question pertained to the state tax return which may have different rules than IRS. The Federal return is of course, not taxable.

I have had a former fire fighter client who retired on a disability (code 3) pension thirty years ago and still receiving a code 3. Never any question from IRS.

[rwm221]

Box 2 is zero and box 7 is 3 and my client is disabled. As soon as I put in the 3, the software I use makes the income in box 1 as taxable even though box 2 is zero. I thought since he is 62 it would be 0. This is for federal.

[Uncle Sam]

Then check with your software company as there should be a way to override the program so it comes out right.

[DoubleO]

Why exactly is this not taxable on federal?

[New York Enrolled Agent]

Why exactly is this not taxable on federal?

There are two possible situations.

If a taxpayer suffers a physical injury off the job and is disabled and can no longer work and retires then typically code 3 is used as one of the exceptions to the 72(t) penalty but the pension is taxable. Box 2 would usually contain the amount in box 1.

A different situation occurs when the injury occurs while working and the taxpayer receives a pension with code 3 in lieu of worker's compensation. This pension is tax free. Box 2 would contain 0.

Obviously, none of us know the details but this taxpayer may fall under the latter situation.