SUBJECT: Disability Income Deduction

REFERENCES: IC 6-3-2-9

DISCLAIMER: Information bulletins are intended to provide nontechnical assistance to the general public. Every attempt is made to provide information that is consistent with the appropriate statutes, rules, and court decisions. Any information that is not consistent with the law, regulations, or court decisions is not binding on either the department or the taxpayer. Therefore, the information provided herein should serve only as a foundation for further investigation and study of the current law and procedures related to the subject matter covered herein.

SUMMARY OF CHANGES

Aside from nonsubstantive, technical changes, this bulletin has been changed to include information for married individuals filing separate returns.

INTRODUCTION

The purpose of this bulletin is to discuss the disability income tax deduction, which is a deduction from adjusted gross income for persons retired on disability who are permanently and totally disabled.

QUALIFICATIONS

To qualify for the deduction, an individual must be (1) retired on disability before the end of the taxable year and (2) permanently and totally disabled at the time of retirement.

PERMANENTLY AND TOTALLY DISABLED

An individual is permanently and totally disabled if the individual is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continued period of not less than 12 months.

PROOF OF DISABILITY

A person may furnish proof of permanent and total disability by including any of the following documents with the person's adjusted gross income tax return. Failure to provide proof of disability will result in disallowing the deduction. The following documents are acceptable to the department to determine that a person is permanently and totally disabled:

COMPUTATION OF DISABILITY DEDUCTION

STEP 1: Determine the amount received by the individual during the taxable year through an accident and health plan for personal injury or sickness to the extent that: (A) These amounts are attributable to contributions by the individual's employer that were not includable in the individual's gross income or are paid by the employer; and (B) These amounts constitute wages or payments in lieu of wages for a period during which the employee is absent from work because of permanent and total disability.

STEP 2: Determine for each week of the taxable year the amount by which each payment referred to in STEP 1 exceeds $100; then add these amounts.

STEP 3: Determine the amount by which the individual's federal adjusted gross income for the taxable year, as defined by Section 62 of the Internal Revenue Code, exceeds $15,000, or $7,500 in the case of a married individual filing a separate return.

STEP 4: Subtract from the amount determined in STEP 1 the amount determined in STEP 2 and the amount determined in STEP 3.

The remainder is the individual's allowable disability income deduction. This amount should be inserted in the section for Indiana modifications to adjusted gross income on Form IT-40.

Any questions concerning the disability income deduction may be directed to Customer Service at (317) 232-2240, or by using the support chat function on INTIME, the department's online e-services portal, at intime.dor.in.gov.

_________________________

Robert J. Grennes, Jr.

Commissioner