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1099-R code 3 & EIC


joanmcq

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I know this has been discussed before, but my search brought up every topic with 1099 in it, and I don't feel like searching through 159 pages of posts.  Yes, even with advanced search.

client has about 5k of pension, code 3 disability under normal retirement age.  Does this qualify for EIC?  No other wages, just social security income.

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Don't agree! See below from Pub 554

Disability benefits.   If you retired on disability, taxable benefits you receive under your employer's disability retirement plan are considered earned income until you reach minimum retirement age. Minimum retirement age generally is the earliest age at which you could have received a pension or annuity if you were not disabled. Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension and are not considered earned income.

Taxpayer must still meet all of the other requirements for EIC

Joel

Edited by Joel
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Another consideration - if taxpayer paid the premiums for the disability policy, it is not earned income.

http://www.irs.gov/Credits-&-Deductions/Individuals/Earned-Income-Tax-Credit/Disability-and-Earned-Income-Tax-Credit

​But I think that if you paid the premiums for a disability policy it would not be reported on a 1099R because it would not be considered taxable income.  And of course, large companies never make mistakes on the tax reporting of insurance proceeds.  /s

 

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Speaking of Form 1099-R. I have a pet peave. Many times the the taxable part of the pension is indicated but then the taxable amount not determined box is also checked. Anyone have a clue why this would be?

​Because the person preparing the form has no real idea what is or is not taxable, so they check that box to cover their a__?  

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I know this has been discussed before, but my search brought up every topic with 1099 in it, and I don't feel like searching through 159 pages of posts.  Yes, even with advanced search.

client has about 5k of pension, code 3 disability under normal retirement age.  Does this qualify for EIC?  No other wages, just social security income.

​How old is the person?

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Speaking of Form 1099-R. I have a pet peave. Many times the the taxable part of the pension is indicated but then the taxable amount not determined box is also checked. Anyone have a clue why this would be?

IRAs always have the taxable amount not determined box checked, because the custodian has no idea of the taxable amount. The only true pensions I've seen with the box checked are old ones from OPM, where you have to use the simplified method to determine the taxable portion.

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Wages are not reported on a 1099R, so no EITC.  They may count if reported on a W2 with "third party" payer checked.  This really helped a client who was facing pay back of his entire ACA advance credit.  We had to do something to bring his income below 400% poverty level so thought of an IRA.  The IRS has a safe harbor for IRA contribution eligibility--if it's on a W2 they will count it as earned income for IRA purposes.  This client had a W2 for disability pay so qualified for a deductible IRA.  Instead of paying back over $8k he was limited to $2500.  Whew.  Not sure if W2 disability counts for EITC though.

You will notice that the "taxable amount not determined" box is checked on IRAs, not pensions.  The reason is that the custodian has no idea if the taxpayer's contributions were deductible or not.  All the custodian gets is the money, not the tax return or 8606.

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i agree with joel.

1099r, code 3, and under min retirement age (check the box on 1099r screen) gets amount to line 7 (earned income) and also generates an eic process.

the other times you said this has been talked about confirmed line 7 and eic.  

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Yes, it's definitely a line 7 situation with the 1099-R.  But you see even on this board how varying the answers are.

3rd party sick pay on W2 does qualify for EIC.

lol, ​varying, yes. still, most of the 1099r answers on this thread were wrong. pay your money (none) and take your chances.

and yes, 3rd party sick pay (box1/w2 & box 12/code j) also qualifies for eic.

  

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For several years I had a client that was on a disability pension.  His wife was blind and they had a disabled son who lived with them.  I was so happy for then to receive EIC up until the age 62 which was his normal retirement age!!

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Same theme, different form.   Am I or am I not correct in thinking that Rental Income disqualifies taxpayer from EIC under the terms of excess investment income?

​You are correct.  If net rental income is over $3,350 for 2014, no EIC.

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​You are correct.  If net rental income is over $3,350 for 2014, no EIC.

​The return I was working on disallowed it even though the net rental income was a negative.  It took the gross before depreciation.  My mind tells me he should not qualify since he also had a business loss; but a little bit of earned income from two small jobs.  I am filing it without the EITC.

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