Police Officer’s Disability Pension
Court ruled that income not taxable after attaining age 50. If a patrolman who was age 50 and has had at least 20 years of service under his belt was eligible for retirement pension. If you became a disability pension beneficiary you were paid 50% of the base pay of a patrolman who had reached the age of 50 and has had 20 years in the field. Disabled police officers received the same pay as a police officer who has qualified to retire, even if they did not have suffient years to retire.
The IRS argued that the benefits paid after turning age 50 were taxable retirement income. It cited Tateosian, TC Memo 2008-101, where the Tax Court held that because a disabled pensioner’s disability benefits effectively terminated under Minnesota law once he turned age 50 and became a deemed service pensioner, his payments could no longer be characterized as compensation for personal injuries under SS104(a) for federal income tax purposes.
The Tax Court determined that the benefits were nontaxable and rejected the IRS’s reliance on Tateosian. Instead the Court looked to precedent from the Ninth Court, to which an Appeal case would be heard and determined that the payments were not retirement benefits because they were determined with reference to his age ao years of service.
For purposes of qualifying for retirement, the fact that the plan deems time spent on disability as equivalent to time spent working does not change the treatment for federal income tax purposes. So if someone completed less than 20 years of service, they would not be eligible for retirement payments; therefore, the character of the payments are nontaxable disability payments for federal income tax purposes.