Disability Pension Taxability

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s About Taxes)/disability pension taxability Advertisement Expert: John Stancil, CPA - 5/31/2011 I received a disability pension about 20 years ago from Colorado PERA(Public Employees Retirement Association).  I am now 67 years old.  For years I haven't included it as income and there was no question about it.  In 2008 the IRS questioned it and my tax preparer sent a letter saying it was not taxable because of code section 104.  I just receive a tax bill for the 2009 tax return.  Is my disability pension now taxable?  If not will I have to defend myself every year from here on out?  Thank you for your help.

[Bidziil]

Bob,

Thanks for your question.

The law has not changed, so if it was not taxable earlier, it is not taxable now.  

The rule for taxing a disability pension is that if you paid the premiums, it is not taxable.  If your company paid the premiums, the the pension should be taxable.  I checked the web page for PERA and it stated "If a retiree receives a disability retirement benefit, the entire benefit is taxable until the retiree reaches "minimum retirement age." PERA uses the age at which a member would first be eligible for reduced service retirement as "minimum retirement age." For most disability retirees, service credit is projected to 20 years, thus minimum retirement age is 55."  So it would appear that the benefits have been taxable for a number of years.

2. Since you have now passed that age, at least a portion of your pension is no longer taxable. Since I do not have the details of your contribution and pension history, I could not begin to advise you of the amount that can be excluded.

I would suggest that you contact a local CPA or enrolled agent to get some clarification on this issue and to help you get it straightened out.

Hope this helps.

John Stancil, CPA