Reporting Disability Income

Employers may report disability income on one of the following forms:

• Form W-2, if the taxpayer has not reached the minimum retirement age set by the employer
• Form 1099-R, if the taxpayer has reached the minimum retirement age

If both the taxpayer and the employer pay for a disability insurance plan, only the amount the taxpayer receives because of the employer's payments is taxable as income. The taxpayer's employer should be able to give specific details about the pension plan and the amount the taxpayer paid for the disability pension.

If the taxpayer:

• Has reached the minimum retirement age, report the disability income as a taxable pension on the appropriate lines of Form 1040, line 16b
• Has not reached the minimum retirement age, report the disability income as wages on Form 1040, line 7

Some employers report disability income on Form 1099-R regardless of the taxpayer's age. You must confirm employers' minimum retirement age. If the taxpayer is under the retirement age, the volunteer must take steps in the software to ensure the income is properly reflected as wages on Form 1040, line 7.