Wisconsin Disability Income Exclusion

Disability Income Exclusion
2020 I-026 Wisconsin Schedule 2440W, Disability Income Exclusion (Applies Only to Disabled Retirees Under Age 65) (fillable)
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Disability Income Exclusion

Schedule 2440W
Wisconsin Department of Revenue

(Applies Only to Disabled Retirees Under Age 65)
See instructions on back.

Enclose with Wisconsin
Form 1 or 1NPR
Legal name(s) shown on Form 1 or Form 1NPR

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2020

Your social security number

Date you retired

Employer’s name (also give payer’s name, if other than employer)

Yourself
Spouse
(1) YOURSELF

(2) SPOUSE

1	 Fill in the amount of your disability pay (see instructions)  . . . . . . . . . . . . . . . . . . . .  	 1
2	 Excludable disability pay (see instructions):
	 (a)	 Multiply $100 by the number of weeks for which your disability payments
		 were at least $100. Fill in the total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  	2a
	 (b)	 If you received disability payments of less than $100 for any week,
		 fill in the total amount you received for all such weeks  . . . . . . . . . . . . . . . . . . .  	2b
	 (c)	 If you received disability payments for less than a week, fill in the
		 smaller amount of either the amount you received or the highest
		 exclusion allowable for the period (see instructions)  . . . . . . . . . . . . . . . . . . . .  	2c
	 (d)	 Add lines 2a, 2b, and 2c. Fill in the total  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  	2d
3	 Add amounts on line 2d, columns (1) and (2). Fill in the total on line 3  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	3
4	 Fill in the smaller of line 1 (total of columns (1) and (2)) or line 3  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	4
5	 Limit on exclusion (see instructions):
	 (a)	 Fill in adjusted gross income from federal Form 1040 or 1040-SR  . . . . . . . . .  	5a
	 (b)	 Amount used to figure any exclusion decrease  . . . . . . . . . . . . . . . . . . . . . . . .  	5b

$15,000.00
	 (c)	 Subtract line 5b from line 5a. If line 5b is more than line 5a, fill in -0-  . . . . . . . . . . . . . . . . . . . . . . . . . 	5c
6	
	
	
	

Subtract line 5c from line 4 and fill in on line 6. If line 5c is more than line 4, fill in -0-.
Full-year residents – This is your disability income exclusion. Fill in this amount on line 22 of Schedule
SB (Form 1). If filing Form 1NPR, see the instructions for line 1 or line 9 of Form 1NPR.
(Part-year residents – complete lines 7 and 8 below.)  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	6

7	 Part-year residents – Divide line 6 by the number of weeks you received disability payments  . . . . . . . . . 	7
8	 Part-year residents – Multiply line 7 by the number of weeks you were a Wisconsin resident and
	 received disability payments. This is your disability income exclusion. Fill in here and see the
	 instructions for line 1 or line 9 of Form 1NPR  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 	8
9	 If you filed a physician’s statement for this disability in an earlier year, check this box.
	 You do not have to file another statement. If you have not, you must file a physician’s statement (see instructions).

Physician’s Statement of Permanent and Total Disability
Please complete and return to the person named below.
Name of disabled person

I certify that the person named above was (check only one box – please see instructions below)
(1)	
Permanently and totally disabled on January 1, 1976, or January 1, 1977.
(2)	
Permanently and totally disabled on the date he or she retired. Date retired
Physician’s name

Physician’s address

Physician’s signature

Date

Instructions for Statement
Taxpayer
  Please fill in your name. If you
retired after December 31, 1976, fill
in your retirement date in the space
after box (2).
I-026 (R. 08-20)

Physician
  Box (1) applies to taxpayers who
retired before January 1, 1977.
  Box (2) applies to taxpayers who
retired after December 31, 1976.

What is Permanent and Total Disability?
  A person is permanently and totally disabled when –
  • He or she cannot engage in any substantial gainful
activity because of a physical or mental condition; and
  • A physician determines that the disability (a) has
lasted or can be expected to last continuously for at least
a year; or (b) can be expected to result in death.

2020 Schedule 2440W Instructions
Purpose of Schedule Persons who receive disability income may be able to exclude a portion of it from their taxable income. Complete this
schedule to determine the amount, if any, of your exclusion.
What is Disability Income Generally, disability income is the total amount you were paid under your employer’s accident and health plan or pension plan instead of wages for the time you were absent from work because of permanent and total disability. However, any payment you received
from a plan that does not provide for disability retirement is not disability income.
Who Can Exclude Disability Income You can take the exclusion for 2020 if you meet ALL these tests:
•	 You received disability income which is not otherwise exempt from Wisconsin tax.
•	 You were under age 65 at the end of 2020. (If you were born on January 1, 1956, you are considered to be age 65 at the end of 2020.)
•	 You retired on disability and were permanently and totally disabled when you retired. (See "What is Permanent and Total Dis­ability?" below
and instructions for Physician’s Statement on page 1.)
•	 On January 1, 2020, you had not yet reached the age when your em­ployer’s retirement program would have required you to retire.
•	 For any year prior to 1984, you did not choose to treat your disability income as a pension instead of taking the exclusion.
•	 If you were married at the end of 2020, you must file a joint return.
•	 You were a Wisconsin resident when you received the disability income.
If you meet these tests, you can take the exclusion until the earliest of the following dates:
(1)	 The first day of the tax year in which you turn 65. (If you were born on January 1, 1956, you are considered to be age 65 at the end of 2020.)
(2)	 The day you reach the age when your employer’s retirement program would have required you to retire.
What is Permanent and Total Disability? A person is permanently and totally disabled if (1) he or she cannot engage in any substantial gainful
activity because of a physical or mental condition, and (2) a physician determines that the condition has lasted or can be expected to last continuously
for at least a year, or can be expected to result in death. An activity is considered substantial if it consists of duties that are more than those of a
nonproductive, make-work nature. An activity is considered gainful if it pays at a rate at or above the minimum wage. The examples below show
substantial gainful activity. In such cases, the disability income exclusion cannot be taken.
Example 1: Sue, who was a sales clerk, retired on disability. She now works as a full-time babysitter earning minimum wage. Although Sue does
different work, she babysits on ordinary terms for the minimum wage. She cannot take the exclusion because she is engaged in an activity that
is both substantial and gainful.
Example 2: Mary, president of the XYZ Corporation, retired on disability because of a terminal illness. On her doctor's advice, she works parttime as a manager and is paid more than the minimum wage. Her employer sets her days and hours. Although Mary’s illness is terminal and she
works part-time, the work is done at her employer's convenience. She is considered engaged in a substantial gainful activity and cannot take the
exclusion.	

Specific Instructions
Line 1 Fill in the amount of disability pay included in your federal adjusted gross income, less any amount that is otherwise exempt from Wisconsin
tax (for example, retirement payments received from the U.S. government that relate to service with the Coast Guard, the commissioned corps
of the National Oceanic and Atmospheric Administration, or the commissioned corps of the Public Health Service).
Lines 2a and 2b You can exclude either your actual weekly disability pay or $100 a week, whichever is less. Your weekly pay is your total
yearly pay divided by 52.
Line 2c If you received disability pay for part of a week, follow the steps below.
Step 1.  Divide $100 by the number of days a week you normally worked before you retired.
Step 2.  Divide the disability pay you received by the number of days it covered in that week.
Step 3.  Compare the Step 1 and Step 2 amounts. The smaller amount is your daily rate. Your exclusion for the week is based on it.
Step 4.  Multiply your daily rate by the number of days you received disability pay in the short week. The result is your exclusion for that week.
Step 5.  Add your exclusion for that week to your exclusion for any other short weeks. Fill in the total on line 2c.
Disability payments are made for part of a week when one of the following happens after the first day of the taxpayer’s normal workweek:
(1)  The disability retirement begins.
(2)  The disability retirement ends because the taxpayer reaches required retirement age.
(3)  The taxpayer dies.
Line 5 Generally, the most a person can exclude is $5,200. This exclusion goes down, dollar for dollar, by any amount over $15,000 on line 5a.
Generally, no exclusion is left if line 5a is –
•	 $20,200 or more, and one person could take the exclusion.
•	 $25,400 or more, and both spouses could take the exclusion.
Physician’s Statement If you did not check the box on line 9 of Schedule 2440W, you must have your physician complete a statement of permanent and total disability. You can use the statement on Schedule 2440W for this purpose. However, if you are filing federal Schedule R and your
physician completed a Physician's Statement for use with that form, you may submit a copy of that statement instead of completing the physician's statement on Schedule 2440W. If both spouses take the exclusion, each must file a statement. If you retired on disability before January 1,
1977, the physician’s statement must show that you were permanently and totally disabled on January 1, 1976, or January 1, 1977. If you retired
on disability after 1976, the physician’s statement must show that you were permanently and totally disabled when you retired.
If the Department of Veterans Affairs (VA) certifies that you are permanently and totally disabled, you can file VA Form 21-0172 instead of the
physician’s statement. VA Form 21-0172 must be signed by a person authorized by the VA to do so. You can get VA Form 21-0172 from your
local VA regional office.
I-026 (R. 08-20)

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Applicable Laws and Rules
This document provides statements or interpretations of the following laws and regulations in effect as of October 26, 2020:
Chapter 71, Wis. Stats.

I-026 (R. 08-20)

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