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DISABILITY PAY FOR POLICE AND FIREFIGHTERS

The following information relates to police and firefighters who are employed full time within the State of Illinois by a municipality governed by the pension and disability statutes discussed below.

Section 1 of the Illinois Public Employee Disability Act, 5 ILCS 345/1 provides for payment to a law enforcement officer or firefighter who is employed on a full time basis and is injured in the line of duty. Payments made under this section of Illinois law are excludable from the employee's gross income.

Section 3-114.1 of the Illinois Pension Code provides for disability pension payments to a police officer who is physically or mentally disabled as a result of performing his/her duties. If the officer on disability pension dies while still disabled, this section also provides for payments to the survivor of the disabled police officer. Payments made under this section of Illinois law are excludable from the police officer's and the survivor's gross income.

Section 4-110 of the Illinois Pension Code provides for disability pension payments to a firefighter who is physically or mentally disabled as a result of performing his/her duties. Payments made under this section of Illinois law are excludable from the firefighter's gross income.

Section 4-114 provides for pension payments to the survivors of all qualified firefighters. It provides for those payments whether or not the deceased firefighter was disabled. Therefore, the pension payments made to survivors of disabled firefighters do not qualify for the exclusion. Payments under this section are reportable to Internal Revenue Service as taxable income.

The amounts characterized above as excludable from income should not be reported to the Internal Revenue Service on Form W-2 (Wage and Tax Statement) or Form 1099-R (Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.) and are not subject to income tax withholding by the employer.

Amounts originally paid as taxable disability payments cannot be converted into nontaxable workmen's compensation payments by a subsequent finding that payments could have been made under a workmen's compensation act. The inclusion in income of, the reporting of, and the withholding of income tax from the nonexcludable disability payments depends instead on whether the amounts are repaid before or after the close of the taxable year in which they were received.

For further information, please call Internal Revenue Service at 1-800-829-1040.

Page 10 / Illinois Municipal Review / October 1993


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