Iowa Administrative Code › Agency 701 - Revenue Department › Title IV - Individual Income Tax › Chapter 302 - Determination of Net Income › Rule 701-302.22 - Disability Income Exclusion

Current through Register Vol. 47, No. 3, July 24, 2024
(1)
				Effective for tax years beginning on or after January 1, 1984, a taxpayer who
				is permanently and totally disabled and has not attained age 65 by the end of
				the tax year or reached mandatory retirement age can exclude a maximum of $100
				per week of payments received in lieu of wages. In order for the payments to
				qualify for the exclusion, the payments must be made under a plan providing
				payment of such amounts to an employee for a period during which the employee
				is absent from work on account of permanent and total disability.
(2) In the case of a married couple where
				both spouses meet the qualifications for the disability exclusion, each spouse
				may exclude $5,200 of income received on account of disability.
(3) There is a reduction in the exclusion,
				dollar for dollar, to the extent that a taxpayer's federal adjusted gross
				income (determined without this exclusion and without the deduction for the
				two-earner married couple) exceeds $15,000. In the case of a married couple,
				both spouses' incomes must be considered for purposes of determining if the
				disability income exclusion is to be reduced for income that exceeds $15,000.
				The taxpayers' disability income exclusion is eliminated when the taxpayers'
				federal adjusted gross income is equal to or exceeds $20,200. The deduction of
				the taxpayers' disability income exclusion because the taxpayers' federal
				adjusted gross income is greater than $15,000 is illustrated in the following
				example:
A married couple is filing their 1984 Iowa return. The
				  husband retired during the year and received $8,000 in disability income during
				  the 40-week period in 1984 that he was retired. The husband's other income in
				  1984 was $2,500 and the wife's income was $7,500.
Of the $8,000 in disability payments received by the husband
				  in the 40-week period he was retired in 1984, only $4,000 is eligible for the
				  exclusion. This is because the maximum amount that can be excluded on a weekly
				  basis as a result of the disability exclusion is $100.
However, the $4,000 that qualifies for the exclusion must be
				  reduced to the extent that the taxpayer's federal adjusted gross income exceeds
				  $15,000. In this example, the taxpayer's federal adjusted gross income is
				  $18,000, which exceeds $15,000 by $3,000. Therefore, the amount eligible for
				  exclusion of $4,000 must be reduced by $3,000. This gives the taxpayers an
				  exclusion of $1,000.
(4) For
				purposes of the disability income exclusion, "permanent and total disability"
				means the individual is unable to engage in any substantial gainful activity by
				reason of a medically determinable physical or mental impairment which (a) can
				be expected to last for a continuous period of 12 months or more or (b) can be
				expected to result in death. A certificate from a qualified physician must be
				attached to the individual's tax return attesting to the taxpayer's permanent
				and total disability as of the date the individual claims to have retired on
				disability. The certificate must include the name and address of the physician
				and contain an acknowledgment that the certificate will be used by the taxpayer
				to claim the exclusion. In an instance where an individual has been certified
				as permanently and totally disabled by the Veterans Administration, Form 6004
				may be attached to the return instead of the physician's certificate. Form 6004
				must be signed by a physician on the VA disability rating board.
(5) Mandatory retirement age is the age at
				which the taxpayer would have been required to retire under the employer's
				retirement program.
(6) The
				disability income exclusion is not applicable to federal income tax for tax
				years beginning after 1983. There are many revenue rulings, court cases and
				other provisions which were relevant to the disability income exclusion for the
				tax periods when the exclusion was available on federal returns. These
				provisions, court cases and revenue rulings concerning the disability income
				exclusion are equally applicable to the disability income exclusion on Iowa
				returns for tax years beginning on or after January 1, 1984.
This rule is intended to implement Iowa Code section
				  422.7.