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Disability as Earned Income?


Possi

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My client married a woman who is permanently disabled from a tumor on her spine. She received Social Security (22,800) and she receives a W2 from an insurance company with ONLY box 1 filled in, $12,922, and "third party sick pay" marked. 

She hasn't filed a tax return since her disability initiated in 2005, when she was 41 years old. 

Wife is telling husband that she isn't required to file and she knows it all. I told the husband, congratulations on your wedding. She is required to file. 

If she had filed in the past, I believe she would have received a little EIC because what I have read tells me that her disability insurance W2 would count as "earned income." 

Do you agree? 

 

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The state of VA doesn't tax permanent disability reported as wages. I had to override TWise to get it to work, and I hate doing that. We are mostly ATX here, but if there are any other red-headed-step-children who might have a clue, help a mother, ok? 

😃

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Possi,  it is a subtraction to income on line 5 of the adjustments

on the 1099R input use code 3 (it is 3 on your 1099R isn't it?)  then there is a box on the 1099R input just under the box 7 that says "check if disability and the taxpayer is disabled"

it will them put it on line 7 as wages and subtract out a max of $20,000 on line 5 of the adjustments

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