Form I-026 - Schedule 2440w Disability Income Exclusion - Wisconsin Department Of Revenue - 2006 Page 2
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2General Instructions
he was given only light duties of a nonproductive, make-work nature.
Unless the activity is both substantial and gainful, John is not engaged in
a substantial gainful activity. The activity was gainful because John was
A. Purpose of Schedule – Persons who receive disability income may
paid at a rate at or above the minimum wage. However, the activity was
be able to exclude a portion of it from their taxable income. Complete this
not substantial because the duties were of a nonproductive, make-work
schedule to determine the amount, if any, of your exclusion.
nature. More facts are needed to establish John’s ability to engage in a
substantial gainful activity.
B. What is Disability Income – Generally, disability income is the
total amount you were paid under your employer’s accident and health
plan or pension plan instead of wages for the time you were absent from
Specific Instructions
work because of permanent and total disability. However, any payment
you received from a plan that does not provide for disability retirement
is not disability income.
Lines 2a and 2b – You can exclude either your actual weekly disability
pay or $100 a week, whichever is less. The following table shows how to
C. Who Can Exclude Disability Income – You can take the exclusion
figure your weekly disability pay.
for 2006 if you meet ALL these tests:
Your weekly pay is the following part of what
• You received disability income which is not otherwise exempt from
Pay period
you receive each pay period
Wisconsin tax.
Weekly ............... All
• You were not yet 65 when your 2006 tax year ended. (If you were born
Every 2 weeks ... Half
on January 1, 1942, you are considered to be age 65 at the end of 2006.)
Twice a month ... Multiply your pay by 24, and divide the result by 52
• You retired on disability and were permanently and totally disabled
Each month ........ Multiply your pay by 12, and divide the result by 52
when you retired. (See Instruction D, What is Permanent and Total
Other .................. Divide your yearly pay by 52
Disability? and instructions for Physician’s Statement.)
Line 2c – If you received disability pay for part of a week, follow the
• On January 1, 2006, you had not yet reached the age when your
steps below.
employer’s retirement program would have required you to retire.
Step 1. Divide $100 by the number of days a week you normally
• You did not in any year prior to 1984 choose to treat your disability
worked before you retired.
income as a pension instead of taking the exclusion.
Step 2. Divide the disability pay you received by the number of days
• If you were married at the end of 2006, you must file a joint return.
it covered in that week.
• You were a Wisconsin resident when you received the disability
income.
Step 3. Compare the Step 1 and Step 2 amounts. The smaller amount
is your daily rate. Your exclusion for the week is based on it.
If you meet these tests, you can take the exclusion until the earliest of
the following dates:
Step 4. Multiply your daily rate by the number of days you received
disability pay in the short week. The result is your exclusion for that
(1) The first day of the tax year in which you turn 65. (If you were born
week.
on January 1, 1942, you are considered to be age 65 at the end of
2006.)
Step 5. Add your exclusion for that week to your exclusion for any
(2) The day you reach the age when your employer’s retirement
other short weeks. Fill in the total on line 2c.
program would have required you to retire.
Disability payments are made for part of a week when one of the
following happens after the first day of the taxpayer’s normal workweek:
D. What is Permanent and Total Disability? – A person is perma-
(1) The disability retirement begins.
nently and totally disabled when:
(2) The disability retirement ends because the taxpayer reaches
required retirement age.
• He or she cannot engage in any substantial gainful activity because
of a physical or mental condition; and
(3) The taxpayer dies.
• A physician determines that the condition (1) has lasted or can be
Line 5 – Generally, the most a person can exclude is $5,200. This
expected to last continuously for at least a year; or (2) can be expected
exclusion goes down, dollar for dollar, by any amount over $15,000 on
to lead to death.
line 5a.
Generally, no exclusion is left if line 5a is –
The examples below show substantial gainful activity. In such cases,
• $20,200 or more, and one person could take the exclusion.
the disability income exclusion cannot be taken.
• $25,400 or more, and both husband and wife could take the exclusion.
Example 1: Sue, who was a sales clerk, retired on disability. She now
works as a full-time babysitter at the minimum wage. Although Sue does
Physician’s Statement – If you did not check the box on line 9 of
different work, she babysits on ordinary terms for the minimum wage.
Schedule 2440W, you must have your physician complete a statement of
She cannot take the exclusion because she is engaged in a substantial
permanent and total disability. You can use the statement on Schedule
gainful activity.
2440W for this purpose. However, if you are filing federal Schedule R
and your physician completed a Physician's Statement for use with that
Example 2: Mary, president of the XYZ Corporation, retired on
form, you may submit a copy of that statement instead of completing the
disability because of terminal illness. On her doctor's advice, she works
Physician's Statement on Schedule 2440W.
part-time as a manager and is paid more than the minimum wage. Her
If both husband and wife take the exclusion, each must file a statement.
employer sets her days and hours. Although Mary’s illness is terminal and
she works part-time, the work is done at her employer's convenience. She
If you retired on disability before January 1, 1977, the physician’s
is considered engaged in a substantial gainful activity and cannot take the
statement must show that you were permanently and totally disabled on
exclusion.
January 1, 1976, or January 1, 1977.
If you retired on disability after 1976, the physician’s statement must
The following example shows a person who might not be considered to
show that you were permanently and totally disabled when you retired.
be engaged in a substantial gainful activity.
If the Department of Veterans Affairs (VA) certifies that you are
Example: John, who retired on disability, took a job with a former
permanently and totally disabled, you can file VA Form 21-0172 instead
employer on a trial basis. The purpose of the job was to see if John could
of the physician’s statement. VA Form 21-0172 must be signed by a
do the work. The trial period lasted for some time during which John was
person authorized by the VA to do so. You can get VA Form 21-0172 from
paid at a rate equal to the minimum wage. Because of John’s disability,
your local VA regional office.
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