You may be eligible for special tax exclusions if you received a service-connected disability (SCD) retirement.
Section 104(a)(1) of the IRS code provides that an amount equal to 50 percent of your final compensation may be excludable from your gross income for federal tax purposes. Any cost-of-living adjustment (COLA) attributable to that amount may also be excludable. Upon your death, your spouse or minor child will be eligible for this tax exclusion if he or she is an eligible survivor.
Any portion of your allowance that exceeds 50 percent of your final compensation at the time of retirement is subject to taxation.
You may be required to file a tax return even if you do not owe any taxes.
To comply with IRS regulations, LACERA reports your retirement income to the IRS each year on Form 1099-R. We identify the taxable amount of your SCD and report it in box 2a. A copy of your 1099-R is mailed to you at the end of each January. The taxable amount of your SCD is also displayed in the total taxable YTD category on your check stub or automatic deposit receipt (ADR).