Question

6744 2019 Basic Scenario 6: Test Questions:

14. Ellas disability pension is reported as wages and considered earned income for the purposes of the earned income tax credit

A. True B. False

Answer 1

Ellas disability pension is reported as wages and considered earned income for the purposes of the earned income tax credit.

A. True (Assuming Ella has not reached her minimum retirement age)

(Justification : If Ella retired early on disability, Ella must include in income any disability pension she receive under a plan that is paid for by her employer. Ella should report her taxable disability payments as wages on Form 1040 until she reach minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled. Since this pension income is considered employee wages, Ella will have to pay income tax on it and she and her employer both will need to pay Social Security and Medicare tax as well.

Beginning on the day after Ella reach minimum retirement age, payments she receive are taxable as a pension or annuity and must be listed as such on her tax return. She must pay income tax on the payments, but not Social Security or Medicare tax.)