(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.
