Tax Type
Individual Income Tax
Description
Disability income subtraction on Virginia individual income tax returns
Topic
Subtractions and Exclusions
Date Issued
08-08-2006
August 8, 2006
Dear ****************:
This will reply to your letter in which you request a ruling concerning the disability income subtraction on Virginia individual income tax returns pursuant to Va. Code § 58.1-322 C 4b.
FACTS
An individual that is permanently disabled receives a federal Wage and Tax Statement (Form W-2) that reports third-party sick pay as income. You request a ruling as to whether the amount reported as third-party sick pay is eligible for the disability income subtraction.
RULING
Virginia Code § 58.1-322 C 4b provides a subtraction from federal adjusted gross income of up to $20,000 for certain disability income as defined under Internal Revenue Code (I.R.C.) § 22(c)(2)(B)(iii). Disability income is defined under this section as the total amount paid under an employer's accident and health plan or pension plan that is included in an individual's gross income as wages or payments for time the employee is absent from work because of a permanent and total disability.
Disability income eligible for the Virginia subtraction is paid to employees who are unable to work because of a permanent disability. Disability income is typically paid through a disability pension or annuity. Distributions are treated similar to those from pensions and retirement plans. Such income is reported on the federal form for distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, and insurance contracts (Form 1099-R).
Sick pay under I.R.C. § 3402(o)(2)(C) constitutes remuneration for a period during which an employee is temporarily absent from work on account of sickness, injury or disability and does not qualify for the Virginia subtraction for disability income. Third-party sick pay is paid by an unrelated third party (e.g., an insurance company) instead of an employer. Sick pay (including third-party sick pay) is reported as wages and included in an employee's Form W-2.
Based on the information provided, the income reported on the individual's Form W-2 as third-party sick pay is not eligible for the subtraction provided by Va. Code § 58.1-322 C 4b.
This ruling is based on the facts presented as summarized above. Any change in facts or the introduction of new facts may lead to a different result.
The Code of Virginia section cited and other reference materials are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's website. If you have any questions regarding this ruling, please contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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- Janie E. Bowen
Tax Commissioner
- Janie E. Bowen
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AR/1-573741053B
Rulings of the Tax Commissioner