Tax Type
Individual Income Tax
Description
Temporary sick pay that does not qualify for the subtraction under Va. Code § 58.1-322 C 4 b.
Topic
Assessment
Taxable Income
Date Issued
09-11-2008
September 11, 2008
Re: § 58.1-1821 Application: Individual Income Tax
Dear *****:
This will reply to your letter in which you seek correction of the individual income tax assessment issued to ***** (the "Taxpayer") for the taxable year ended December 31, 2004.
FACTS
The Taxpayer is permanently disabled and receives a federal Wage and Tax Statement (Form W-2) that reported third-party sick pay as income in 2004. The Taxpayer subtracted this income as disability income pursuant to Va. Code § 58.1-322 C 4 b on his 2004 Virginia income tax return. The Department disallowed this subtraction on the basis that third-party sick pay reported on a Form W-2 is not disability income subject to the subtraction. The Taxpayer contends that the income constitutes disability income because he is being compensated due to a permanent disability.
DETERMINATION
Virginia Code § 58.1-322 C 4 b provides a subtraction from federal adjusted gross income of up to $20,000 for certain disability income as defined under Internal Revenue Code (IRC) § 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.
In Public Document (P.D.) 06-63 (8/6/2006), the Department addressed the scope of the subtraction, concluding that disability income eligible for the Virginia subtraction 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 (including third-party sick pay) reported as wages under IRC § 3402(o)(2)(C) and reported on Form W-2 does not qualify for the Virginia subtraction for disability income.
The Taxpayer has provided a letters form the insurer, employer and the Social Security Administration (SSA) proving that the Taxpayer is permanently disabled. The determination of whether income qualifies for the subtraction, however, is based classification of the income, not just whether an individual is disabled or not.
In this case, the insurer issued the Taxpayer a W-2 reporting wages. Such wages are considered temporary sick pay that does not qualify for the subtraction under Va. Code § 58.1-322 C 4 b. Accordingly, the Taxpayer's request for the abatement of the 2004 tax assessment must be denied.
A revised bill, with interest accrued to date, will be sent to the Taxpayer. No additional interest will accrue provided the outstanding balance in paid within 30 days from the date of the revised bill.
The Code of Virginia sections and public document cited, along with other reference documents, are available on-line at www.tax.virginia.gov in the Tax Policy Library section of the Department's web site. If your have any questions about this determination, you may contact ***** in the Office of Tax Policy, 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/1-2352000071.B
Rulings of the Tax Commissioner