Possi Posted March 17, 2019 Report Share Posted March 17, 2019 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? 2 Quote Link to comment Share on other sites More sharing options...
jklcpa Posted March 17, 2019 Report Share Posted March 17, 2019 Yes, the payer of the third party sick pay is acting as agent for the employer and the payment is considered wages to the extent it is subject to withholding and includable in income, so it does qualify as earned income for EIC. 2 1 Quote Link to comment Share on other sites More sharing options...
Possi Posted March 17, 2019 Author Report Share Posted March 17, 2019 Thank you for the validation. That's one I got right. One. 2 1 Quote Link to comment Share on other sites More sharing options...
TAXMAN Posted March 18, 2019 Report Share Posted March 18, 2019 I think the ones you gotta watch are the 1099R with a code 3. 3 Quote Link to comment Share on other sites More sharing options...
Possi Posted March 18, 2019 Author Report Share Posted March 18, 2019 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? Quote Link to comment Share on other sites More sharing options...
Hahn1040 Posted March 18, 2019 Report Share Posted March 18, 2019 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 1 Quote Link to comment Share on other sites More sharing options...
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