If you retired on disability, you must report your disability income as ordinary income. However, you may be entitled to a credit. See Credit for Elderly or Disabled, later.

Disability Payments

If you retired on disability, pension payments you receive are taxable as wages until you reach minimum retirement age. Beginning on the day after you reach minimum retirement age, your payments are treated as a pension or annuity. At that time you begin to recover the cost of the annuity under the rules discussed earlier.

Minimum retirement age. Minimum retirement age is the age at which you could first receive an annuity were you not disabled.

How to report. You must report all your taxable disability payments on line 7, Form 1040 or Form 1040A, until you reach minimum retirement age.

Credit for Elderly or Disabled

You can take the credit for the elderly or the disabled if:

1. You are a qualified individual, and
2. Your income is not more than certain limits.

You are a qualified individual for this credit if you are a U.S. citizen or resident and, at the end of the tax year, you are:

1. Age 65 or older, or
2. Under age 65, retired on permanent and total disability, and:
   1. Received taxable disability income, and
   2. Did not reach mandatory retirement age before the tax year.

If you retired after January 1, 1977, you are retired on permanent and total disability if:

1. You were permanently and totally disabled when you retired, and
2. You retired on disability before the close of the tax year.

Mandatory retirement age. Mandatory retirement age is the age set by your employer at which you must retire.

Permanently and totally disabled. You are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. A physician must certify that the condition can be expected to result in death or that the condition has lasted (or can be expected to last) continuously at least 12 months.

Substantial gainful activity. Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit.

Physician's statement. If you are under 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. You can use the Physician's Statement in the instructions for Part II of either Schedule R (Form 1040) or Schedule 3 (Form 1040A). Keep this statement for your records. You do not have to file it with your income tax return.

You do not have to get another physician's statement for 2000 if certain exceptions apply (as described in the instructions for Schedule R and Schedule 3) and you checked the box on line 2 of Part II of either Schedule R (Form 1040) or Schedule 3 (Form 1040A).

Figuring the credit. The IRS can figure the credit for you. See the instructions for Schedule R (Form 1040) or Schedule 3 (Form 1040A).

More information. For complete information on this credit, get Publication 524.

Previous | First | Next

Publication Index | 2000 Tax Help Archives | Tax Help Archives | Home