Having it Both Ways

[Dave T]

Here's an oddity ( at least I find it so ), client receives a 1099-R from New York State which exempts pensions of Federal and State governments.

Distribution code is 3 which is a disability pension and the amount flows to line 7 of the 1040 as wages. This allows client to receive $ 400.00 Making Work Pay credit and because this and SS is his only income qualifies him for Earned Income Credit

In addition, since this is a pension it is not taxed by NYS.

I know the tax code isn't always logical but this seems especially strange to me.

Any thoughts?

Dave T

[kcjenkins]

I don't understand why it is flowing to Line 7. It should flow to Line 16a?

[rfassett]

I learned something new. Just for grins, I opened up a 1040 and input a 1099 R with a code 3 and it flowed to 16a. But if I mark the box "If code 3, check if recipient is under the minimum retirement age", then the income flows to line 7 of the 1040. I checked and sure enough, line 7 is to include "disability pensions received before retirement age". I also checked and did not find an exclusion for EIC. As weird as it sounds, I think this is correct - assuming the taxpayer is below the minimum retirement age.

[Dave T]

I learned something new. Just for grins, I opened up a 1040 and input a 1099 R with a code 3 and it flowed to 16a. But if I mark the box "If code 3, check if recipient is under the minimum retirement age", then the income flows to line 7 of the 1040. I checked and sure enough, line 7 is to include "disability pensions received before retirement age". I also checked and did not find an exclusion for EIC. As weird as it sounds, I think this is correct - assuming the taxpayer is below the minimum retirement age.

Yes - he is 56 years old and that appears to be the answer.

Thanks for the response.

Dave T

[Kimberly K]

Yep, I seen it happen about 5 years ago, my client was able to receive EIC until he reached retirement age for the company. I too was amazed and the client was so happy because the refund helped with his daughters college expenses. Its rare but awesome when it does happen!