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We are an independent, advertising-supported comparison service. Our goal is to help you make smarter financial decisions by providing you with interactive tools and financial calculators, publishing original and objective content, by enabling you to conduct research and compare information for free - so that you can make financial decisions with confidence.
Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover.
How We Make Money.
The offers that appear on this site are from companies that compensate us. This compensation may impact how and where products appear on this site, including, for example, the order in which they may appear within the listing categories. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you.
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Dear Tax Talk,
How do I determine taxation of disability benefits? I was told that if my disability was given a tax code 3 in Box 7 of my 1099, then I was not obligated to pay taxes. Is this true? — Dena
Dear Dena,
The taxable amount, if any, of your disability distribution is going to be listed in Box 2 of Form 1099-R. Form 1099-R is a multipurpose form issued for various distributions such as those from pensions, annuities, retirement or profit sharing plans, individual retirement accounts, insurance contracts, etc. Some distributions are not only taxable but also subject to an additional 10 percent penalty. The distribution codes listed in Box 7 are used to identify the characteristics of the distribution and help you to determine if you owe the additional 10 percent tax.
In your situation, if the Form 1099-R has a code of 3 in Box 7, this indicates that the distribution is due to disability and is not subject to the 10 percent additional tax. Depending on the specific type of plan that is making the distribution, you may be required to complete Form 5329, Additional Taxes on Qualified Plans (including IRAs) and Other Tax-Favored Accounts, when you file your Form 1040.
Ask the adviser
To ask a question on Tax Talk, go to the “Ask the Experts” page and select “Taxes” as the topic. Read more Tax Talk columns.
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