Part III Rules for Disability Retirement and Credit for the Elderly or the Disabled

This part of the publication is for federal employees and retirees who receive disability benefits under the CSRS, the FERS, or other federal programs. It also explains the tax credit available to certain taxpayers because of age or disability.

If you retired on disability, the disability annuity you receive from the CSRS or FERS is taxable as wages until you reach minimum retirement age, as explained in this section. However, beginning on the day after you reach minimum retirement age, your payments are treated as a re- tirement annuity and you can begin to recover the cost of your annuity under the rules discussed earlier under Part II, Rules for Retirees .

If you find that you could have started your recovery in an earlier year for which you have already filed a return, you can still start your recovery of contributions in that earlier year. To do so, file an amended return for that year and each succeeding year for which you have already filed a return. Generally, an amended return for any year must be filed within 3 years after the due date for filing your original return for that year.

Minimum retirement age. This is the age at which you could first receive an annuity were you not disabled. This is generally based on your age and length of service.

Retirement under the CSRS. In most cases, under the CSRS, the minimum combinations of age and service for retirement are:

• Age 55 with 30 years of service;

• Age 60 with 20 years of service;

• Age 62 with 5 years of service; or

• For service as a law enforcement officer, firefighter, nuclear materials courier, or air traffic controller, age 50 with 20 years of covered service.

Retirement under the FERS. In most cases, the minimum age for retirement under the FERS is between ages 55 and 57 with at least 10 years of service. With at least 5 years of service, your minimum retirement age is age 62. Your minimum retirement age with at least 10 years of service is shown in Table 2.

Table 2. FERS Minimum Retirement Age (MRA) With 10 Years of Service

For service as a law enforcement officer, member of the Capitol or Supreme Court Police, firefighter, nuclear materials courier, or air traffic controller, the minimum retirement age is age 50 with 20 years of covered service or any age with 25 years of covered service.

How to report. You must report all your disability annuity payments received before minimum retirement age on Form 1040, 1040-SR, or 1040-NR, line 1h. Disability annuity payments received after you reach that age are reported as discussed earlier under How To Report Benefits in Part II .

Withholding. For income tax withholding purposes, a disability annuity is treated the same as a nondisability annuity. This treatment also applies to disability payments received before minimum retirement age even though these payments are shown as wages on your return. See Tax Withholding and Estimated Tax , earlier, under Part II .

The tax treatment of certain other benefits is explained in this section.

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Federal Employees’ Compensation Act (FECA). FECA payments you receive for personal injuries or sickness resulting from the performance of your duties are like workers’ compensation. They are tax exempt and aren’t treated as disability income or annuities. However, payments you receive while your claim is being processed, including pay while on sick leave and continuation of pay for up to 45 days, are taxable.

Sick pay or disability payments repaid. If you repay sick leave or disability annuity payments you received and included in income in an earlier year to be eligible for nontaxable FECA benefits for that period, you can’t deduct the amount you repay.

If you repay sick leave or disability annuity payments in the same year you receive them, the repayment reduces your taxable sick leave pay or disability annuity.

Terrorist attack. Disability payments for injuries incurred as a direct result of a terrorist attack directed against the United States (or its allies) aren’t included in income. For more information about payments to survivors of terrorist attacks, see Pub. 3920, Tax Relief for Victims of Terrorist Attacks.

Military actions. Disability payments for injuries incurred as a direct result of a military action involving the Armed Forces of the United States and resulting from actual or threatened violence or aggression against the United States or any of its allies aren’t included in income.

Disability resulting from military service injuries. If you received tax-exempt benefits from the Department of Veterans Affairs for personal injuries resulting from active service in the United States Armed Forces and later receive a CSRS or FERS disability annuity for disability arising from the same injuries, you can’t treat the disability annuity payments as tax-exempt income. They are subject to the rules described earlier under Disability Annuity .

Payment for unused annual leave. If you retire on disability, any payment for your unused annual leave is taxed as wages in the tax year you receive the payment.

You can take the credit for the elderly or the disabled if:

• You are a qualified individual, and

• Your income isn’t more than certain limits.

You are a qualified individual for this credit if you are a U.S. citizen or resident alien and, at the end of the tax year, you are:

1. Age 65 or older; or

2. Under age 65, retired on permanent and total disability, and:

a. Received taxable disability income, and

You are retired on permanent and total disability if:

• You were permanently and totally disabled when you retired, and

• You retired on disability before the close of the tax year.

Even if you don’t retire formally, you may be considered retired on disability when you have stopped working because of your disability.

Permanently and totally disabled. You are permanently and totally disabled if you can’t engage in any substantial gainful activity because of your physical or mental condition. A physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death. See Physician's statement next. Substantial gainful activity is the performance of significant duties over a reasonable period of time while working for pay or profit, or in work generally done for pay or profit.

Physician’s statement. If you are under age 65, you must have your physician complete a statement certifying that you were permanently and totally disabled on the date you retired. You must keep this statement for your tax records. For this purpose, you can use the Physician’s Statement in the Instructions for Schedule R (Form 1040).

Mandatory retirement age. This is the age set by your employer at which you would have had to retire if you hadn’t become disabled. There is no mandatory retirement age for most federal employees. However, there is a mandatory retirement age for the following federal employees.

• Air traffic controllers appointed after May 15, 1972, by the Department of Transportation or the Department of Defense must generally retire by the last day of the month when they reach age 56.

• Federal firefighters, law enforcement officers, nuclear materials couriers, or members of the Capitol or Supreme Court Police who are otherwise eligible for immediate retirement must generally retire by the last day of the month they reach age 57 or, if later, complete 20 years of service.

Figuring the credit. If you figure the credit yourself, first fill out the front of Schedule R (Form 1040). Next, fill out Part III of the schedule.

If you want the IRS to figure your tax and credits, including the credit for the elderly or the disabled, see the Instructions for Schedule R (Form 1040).

More information. For detailed information about this credit, see the Instructions for Schedule R (Form 1040).

b. Didn’t reach mandatory retirement age (defined

later) before the tax year.

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