Fillable Schedule 2440w - Disability Income Exclusion

General Instructions

Specific Instructions

A. Purpose of Schedule – Persons who receive disability income may

Line 1 – Fill in the amount of disability pay included in your federal

be able to exclude a portion of it from their taxable income. Complete

adjusted gross income, less any amount that is otherwise exempt

this schedule to determine the amount, if any, of your exclusion.

from Wisconsin tax (for example, retirement payments received from

the U.S. government that relate to service with the Coast Guard,

B. What is Disability Income – Generally, disability income is the

the commissioned corps of the National Oceanic and Atmospheric

total amount you were paid under your employer’s accident and health

Administration, or the commissioned corps of the Public Health

plan or pension plan instead of wages for the time you were absent from

Service).

work because of permanent and total disability. However, any payment

Lines 2a and 2b – You can exclude either your actual weekly

you received from a plan that does not provide for disability retirement

is not disability income.

disability pay or $100 a week, whichever is less. The following table

shows how to figure your weekly disability pay.

C. Who Can Exclude Disability Income – You can take the

exclusion for 2012 if you meet ALL these tests:

Your weekly pay is the following part of what

Pay period

you receive each pay period

• You received disability income which is not otherwise exempt from

Weekly . .............. All

Wisconsin tax.

Every 2 weeks . ... Half

• You were not yet 65 when your 2012 tax year ended. (If you were

Twice a month ... Multiply your pay by 24, and divide the result by 52

born on January 1, 1948, you are considered to be age 65 at the end

Each month . ....... Multiply your pay by 12, and divide the result by 52

of 2012.)

Other . ................. Divide your yearly pay by 52

• You retired on disability and were permanently and totally disabled

Line 2c – If you received disability pay for part of a week, follow

when you retired. (See Instruction D, What is Permanent and Total

the steps below.

Dis a bility? and instructions for Physician’s Statement.)

• On January 1, 2012, you had not yet reached the age when your

Step 1. Divide $100 by the number of days a week you normally

em p loyer’s retirement program would have required you to retire.

worked before you retired.

• You did not in any year prior to 1984 choose to treat your disability

Step 2. Divide the disability pay you received by the number of days

income as a pension instead of taking the exclusion.

it covered in that week.

• If you were married at the end of 2012, you must file a joint return.

Step 3. Compare the Step 1 and Step 2 amounts. The smaller amount

• You were a Wisconsin resident when you received the disability

is your daily rate. Your exclusion for the week is based on it.

income.

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

If you meet these tests, you can take the exclusion until the earliest of

week.

the following dates:

(1) The first day of the tax year in which you turn 65. (If you were

Step 5. Add your exclusion for that week to your exclusion for any

born on January 1, 1948, you are considered to be age 65 at the

other short weeks. Fill in the total on line 2c.

end of 2012.)

Disability payments are made for part of a week when one of the fol-

lowing happens after the first day of the taxpayer’s normal workweek:

(2) The day you reach the age when your employer’s retirement

(1) The disability retirement begins.

program would have required you to retire.

(2) The disability retirement ends because the taxpayer reaches

D. What is Permanent and Total Disability? – A person is

required retirement age.

permanently and totally disabled when:

(3) The taxpayer dies.

• He or she cannot engage in any substantial gainful activity because

Line 5 – Generally, the most a person can exclude is $5,200. This

of a physical or mental condition; and

exclusion goes down, dollar for dollar, by any amount over $15,000

on line 5a.

• A physician determines that the condition (1) has lasted or can be

expected to last continuously for at least a year; or (2) can be expected

Generally, no exclusion is left if line 5a is –

to lead to death.

• $20,200 or more, and one person could take the exclusion.

• $25,400 or more, and both husband and wife could take the

An activity is considered substantial if it consists of duties that are

exclusion.

more than those of a nonproductive, make-work nature. An activity is

considered gainful if it pays at a rate at or above the minimum wage.

Physician’s Statement – If you did not check the box on line 9 of

The examples below show substantial gainful activity. In such cases,

Schedule 2440W, you must have your physician complete a statement of

the disability income exclusion cannot be taken.

permanent and total disability. You can use the statement on Schedule

2440W for this purpose. However, if you are filing federal Schedule R

Example 1: Sue, who was a sales clerk, retired on disability. She now

and your physician completed a Physician's Statement for use with that

works as a full-time babysitter at the minimum wage. Although Sue does

form, you may submit a copy of that statement instead of completing

different work, she babysits on ordinary terms for the minimum wage.

the physician's statement on Schedule 2440W.

She cannot take the exclusion because she is engaged in an activity that

is both substantial and gainful.

If both husband and wife take the exclusion, each must file a state-

ment.

Example 2: Mary, president of the XYZ Corporation, retired on

If you retired on disability before January 1, 1977, the physician’s

disability because of terminal illness. On her doctor's advice, she works

statement must show that you were permanently and totally disabled

part-time as a manager and is paid more than the minimum wage. Her

on January 1, 1976, or January 1, 1977.

employer sets her days and hours. Although Mary’s illness is terminal

If you retired on disability after 1976, the physician’s statement must

and she works part-time, the work is done at her employer's convenience.

show that you were permanently and totally disabled when you retired.

She is considered engaged in a substantial gainful activity and cannot

If the Department of Veterans Affairs (VA) certifies that you are

take the exclusion.

permanently and totally disabled, you can file VA Form 21-0172 instead

of the physician’s statement. VA Form 21-0172 must be signed by a

person authorized by the VA to do so. You can get VA Form 21-0172

from your local VA regional office.

Schedule 2440w - Disability Income Exclusion - 2012 Page 2

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