What am I doing wrong? How do I proceed?

[rbrittain6]

Military pension disability exclusion question.  I have a client receiving a military pension for years of service.  Three months military retirement, he was diagnosed as 70% disabled due to military activity.  Based on Pub 525, I believe the 70% should be excluded from his taxable military pension income.  However, his 1099R shows an amount, taxable amount (both the same) and a code 7 (normal distribution).  On the "General Rule" screen of the 1099R section within PTO, there are fields called "Exclusion percentage" and "Exclusion amount."  When I enter 70, .70 or dollar amount, PTO is not calculating/excluding any amount.  What am I doing wrong? How do I proceed?

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[Terry53029]

Take a look at this site for a good article on military pensions:
https://myarmybenefits.us.army.mil/Benefit-Library/Federal-Benefits/Federal-Taxes-on-Veterans-Disabi...

[IRonMaN · Accepted solution]

VA disability payments don't normally show up on a 1099R.  Are you sure you aren't dealing with two separate payments?

[rbrittain6]

Yes. I’m sure. The taxpayer stated he receives VA disability payments and military pension payments separately.

[IRonMaN]

But that's what I'm saying.  The 1099R payments should reflect just the military pension.  The disability payments are not reported on 1099.

[TAXOH]

IRonMaN is correct.

[IRonMaN]

I think that is the second time this year.  I'm on a roll :roller_coaster:

[abctax55]

But ya' only get two...so now you have to wait until January :joy:

[IRonMaN]

It will take that long before I get another one right :grimacing:

[rbrittain6]

You guys are hilarious. 🙂 That's for your help thus far.  The 1099R shows just the military pension income and not any disability income.  The two are paid separately to the taxpayer's bank account.  The 1099R shows $31K of taxable military pension.  Based on the 70% disability, it is my understanding per Pub 525, Example 19, the taxpayer should only have taxable military pension income of $~9,300 (30% of $31K as 70% should be excluded).  My instinct is to enter the $31K from the 1099 into PTO, excludes the 70% and send the VA letter with the tax return.  However, PTO is not recognizing any values when I enter the 70% exclusion on the "General Rule" screen of the 1099R section within PTO.  Should I just enter $9,300 then and attached the 1099R and VA letter to the mailed return?

[IRonMaN]

Look at the client's bank statements.  Do the total deposits for both pensions equal the 1099R?  If not, everything is being handled correctly.  The disability was not reported on the 1099R and there is nothing extra for you to do than enter the 1099R as fully taxable.

[Donnie Jo]

If the veteran is receiving concurrent combat related disability and has been qualified as such by the VA  and give up a portion of their normal VA disability pay, they are entitled to additional exclusion of income from their 1099-R amount of taxable income.  Based on IRS code sectiu9nb 1.122-1 (d) examples 4, 5 and 6, based on their original retired active duty pay and less retired pay waived, the veteran can get 70% of their normal military retirement pay excluded from income.  I've got VA clients that have claimed it for years.  Google it, you'll never get a correct answer here, too complex of an issue.

[Giraffes5gb]

Hello there! I am trying to take this exclusion for one of my clients as well. 

He is less than full retirement age and was retired honorably on military medical discharge. Then three years later, VA determines he was 100% disabled since Dec 2018 when he was discharged. In 2021 once rated 100%, they gave him the choice to take a VA paid disability pension or a DFAS pension. 

The regular pension amount was higher so he chose that. Now I am trying to exclude the amount of what the VA disability pension would have been if he had accepted that. 

How or where in Proseries Basic can I exclude the disability part of his pension?

Did anyone get an answer for that?

[Donnie Jo]

You have to pay close attention!  The only time you get to reduce the taxable portion of a Veterans Retirement income shown on the 1099-R is if the Veteran is specifically declared a "Concurrent Combat Related Disability"  (CCRD) Retiree, This is a special category of disability approved by the VA.  Any other tax free adjustments are only allowed if the VA made an after the fact adjustment to the disability and it should have affected the taxable amount on the 1099-R.  Many veterans are 100% disabled and retired, but are not :CCRD" and can not adjust the taxable retirement on their 1099-R.

[Giraffes5gb]

Thank you very much Donnie Jo!