Taxability of Accidental Disability...

I received my accidental disability pension including all backpay in a very timely fashion. Good job on that one Division of Pensions and Benefits! I also went to an accountant to ammend the last 3 years' tax returns. He needed paperwork/clarification on how the pension is coded for tax purposes in order to keep the IRS from needing further paperwork when I file.

I checked every fact sheet available over the internet and except for a general statement about the State of NJ filing it as untaxable, no where could I find out why. The State PBA pension consultant was the first to provide me the information I needed. Further calls to the Division of Pensions and Benefits, including having to get nasty at one point, finally yielded the same results. It seemed like some big secret as to why this pension is not taxable. How hard would it be to put this on a fact sheet available to everyone who receives accidental disability?

So here it is folks...

"The Taxpayer received service incurred disability pension from the State of New Jersey Police and Fireman's Pension System. This pension is excludable from Gross Income under Section 104 (a)(1) of the IRC and Section 1.104-1(b) of the IRS Regs. which excludes from Gross Income the amounts received by an employee under a Workmen's Compensation Act or under a Statute in the nature of a W.C. Act that provides benefits in the nature of, in lieu of, or supplemental to W.C. to the employee for personal injury or sickness incurred in the course of employment."

The legal ruling of Caplin & Drysdale Attorneys (a law firm which specializes in federal taxation) filed January 11, 2001 caused the State of New Jersey to change their policy and to consider certain accidental disability pensions to be excludable from Gross Income.

The Division will, upon request, send ammended 1099R forms to the taxpayer and the IRS.