Fillable Schedule 2440w - Disability Income Exclusion

General Instructions

Specific Instructions

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

A. Purpose of Schedule – Persons who receive disability income

adjusted gross income, less any amount that is otherwise exempt

may be able to exclude a portion of it from their taxable income. Com-

from Wisconsin tax (for example, retirement payments received from

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

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

Service).

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

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

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

is not disability income.

shows how to figure your weekly disability pay.

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

Your weekly pay is the following part of what

exclusion for 2015 if you meet ALL these tests:

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

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

• You were not yet 65 when your 2015 tax year ended. (If you were

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

born on January 1, 1951, you are considered to be age 65 at the end

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

of 2015.)

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

• You retired on disability and were permanently and totally disabled

the steps below.

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

Dis ability? and instructions for Physician’s Statement.)

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

• On January 1, 2015, you had not yet reached the age when your

worked before you retired.

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

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

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

days it covered in that week.

income as a pension instead of taking the exclusion.

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

• If you were married at the end of 2015, you must file a joint return.

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

• You were a Wisconsin resident when you received the disability

Step 4. Multiply your daily rate by the number of days you received

income.

disability pay in the short week. The result is your exclusion for that

week.

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

of the following dates:

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

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

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

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

born on January 1, 1951, you are considered to be age 65 at the

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

end of 2015.)

(1) The disability retirement begins.

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

(2) The disability retirement ends because the taxpayer reaches

program would have required you to retire.

required retirement age.

(3) The taxpayer dies.

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

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

permanently and totally disabled when:

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

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

on line 5a.

of a physical or mental condition; and

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

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

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

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

• $25,400 or more, and both spouses could take the exclusion.

expected to lead to death.

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

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

Schedule 2440W, you must have your physician complete a state-

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

ment of permanent and total disability. You can use the statement on

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

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

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

Schedule R and your physician completed a Physician's Statement for

the disability income exclusion cannot be taken.

use with that form, you may submit a copy of that statement instead

of completing the physician's statement on Schedule 2440W.

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

If both spouses take the exclusion, each must file a statement.

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

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

does different work, she babysits on ordinary terms for the minimum

statement must show that you were permanently and totally disabled

wage. She cannot take the exclusion because she is engaged in an activ-

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

ity that is both substantial and gainful.

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

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

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

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

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

works part-time as a manager and is paid more than the minimum

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

wage. Her employer sets her days and hours. Although Mary’s illness

instead of the physician’s statement. VA Form 21-0172 must be

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

signed by a person authorized by the VA to do so. You can get VA

convenience. She is considered engaged in a substantial gainful activity

Form 21-0172 from your local VA regional office.

and cannot take the exclusion.

Return to Page 1

I-026 (R. 4-15)

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Schedule 2440w - Disability Income Exclusion - 2015 Page 2

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