5.40 F. Income Taxes on Disability Benefits

2. Retirement Income Credit Available To Disabled Members

1. Disabled Members Under Age 65

If the disabled member is totally and permanently disabled, the member may be able to claim retirement income credits.

For tax purposes, a person is deemed to be permanently and totally disabled if unable to engage in any substantial gainful activity by reason of a medically determinable impairment (physical or mental) that (1) can be expected to result in death, or (2) has lasted or can be expected to last for a continuous period of at least 12 months.

In general, the credit is limited to a base amount which is the lesser of (1) the disability income or (2) $5,000 if single; $7,500 if both spouses are disabled and file a joint return; $3,750 if married filing a separate return.

This base amount is reduced by non-taxable Social Security Social Security coverage for IMRF members is required, except for a limited number of firefighters and police officers, by an agreement between the State of Illinois and the Commissioner of Social Security under Section 218 of the Social Security Act. IMRF members pay Social Security taxes on wages up to the wage base, and IMRF employers pay an equal amount. IMRF employers remit these taxes to the Internal Revenue Service. Applications for benefits and questions about Social Security should be directed to the local Social Security district office or representative or call 1-800-772-1213. benefits and other non-taxable pension Also known as an annuity. An IMRF pension is paid as long as the member lives. It is increased by 3% of the original amount each year. A member must have at least eight years of service credit and be age 55 to apply for an IMRF pension under the Regular and ECO plans. A member must be age 50 and have at least 20 years of SLEP service credit to apply for a SLEP pension. income, such as railroad retirement, and by workers’ compensation used to compute Social Security payment amounts.

In addition, if adjusted gross income exceeds a specified dollar limit, the base amount is further reduced by half of the excess.

The dollar limits are $7,500 for a single person; $10,000 for married individuals filing a joint return; and $5,000 for married individuals filing separate returns.

2. Disabled Members Age 65 or Over

Members age 65 or over in the taxable year may be able to claim retirement income credit whether or not considered permanently and totally disabled.

In general, the exclusion is limited to a base amount of $5,000 for single individuals and married individuals filing a joint return if one spouse is eligible; $7,500 for married individuals both qualifying and filing a joint return; and $3,750 for married individuals filing a separate return.

This base amount is reduced by non-taxable Social Security benefits and other non-taxable pension income, such as railroad retirement, and by workers’ compensation used to compute Social Security payment amounts.

In addition, if adjusted gross income exceeds a specified dollar limit, the base amount is further reduced by half of the excess.

The dollar limits are $7,500 for a single individual; $10,000 for married individuals filing a joint return; and $5,000 for married individuals filing separate returns.

3. How to Claim Retirement Income Credit

In order to claim retirement income credit, the disabled member should report the disability income on IRS Form 1040 and claim the retirement income credit on Schedule R to Form 1040.

A married individual who has lived with his or her spouse for all or any part of the taxable year must file a joint return in order to claim the credit.

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