Have you heard of this? Safety officer claims IRS has a code to eliminate taxes on vacation pay when retiring on disabilty?

[IRonMaN · Accepted solution]

I heard that from my barber.  But then again my barber also told me that all of my clients' complete tax returns were going to fit on a single postcard last year, so I'm not relying on him too much these days.  But in any case I'm riding the bus with the QB lady - how do you collect vacation pay while you are retired?

[The-Tax-Lady]

I have a PSO who retired on Disability and received their accumulated Vacation pay in the following year. Weird but true. 

I believe this incorrect information involves the exclusion of Health and LTC insurance premiums, paid directly by an eligible retirement plan, from the retirement benefits, at the request of the Public Safety Officer. There are other income exclusions for PSO's but, unfortunately, they only apply to officers killed in the line of duty.

[Just-Lisa-Now-]

https://www.irs.gov/government-entities/federal-state-local-governments/compensation-paid-to-depende...

This one?

Doesnt mention "vacation" pay.

[qbteachmt]

Why would someone get vacation pay, if they retire on disability? Perhaps they mean: "Deferred comp earned and unpaid at the time of separation due to disability."