Pension Exclusion Amounts received as pensions from employers (including pensions of a deceased taxpayer) may qualify for an exclusion from Delaware taxable income, subject to the limitations described below.
An early distribution from an IRA or Pension fund due to emergency reasons or a separation from employment does not qualify for the pension exclusion. If the distribution code(s) listed in Box 7 of your 1099 R(s) is a 1 (one), then that amount DOES NOT qualify for the pension exclusion. Also, if you were assessed an early withdrawal penalty on Federal 1040, Line 59, that amount DOES NOT qualify for the pension exclusion.
NOTE: Each taxpayer may receive ONLY ONE exclusion, even if he or she is receiving more than one pension or other retirement distribution. Spouses who each receive pensions are entitled to one exclusion each.
IF YOU WERE UNDER 60 on December 31, 2014, your exclusion equals $2,000 or the amount of your pension, whichever is less.
Disability pension income paid by your employer is reported as wages on the federal return, until you reach the 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. Therefore, Disability pension income would not qualify for the pension exclusion.
Pension Exclusion Example: The primary taxpayer received $10,000 in pension income. The secondary taxpayer received no pension income. The taxpayers had joint bank accounts and mutual fund accounts. They earned $5,000 in interest from the bank, $1,000 in dividends and $3,000 in capital gains. These accounts would be split equally between the two taxpayers. Both taxpayers, in this example, are over 60 years old. The primary taxpayer's exclusion is $12,500 (10,000 + 2,500 + 500 + 1,500 = 14,500). The maximum exclusion for the primary taxpayer is $12,500. The secondary taxpayer's exclusion is $4,500 (2,500 + 500 + 1,500 = 4,500). The secondary taxpayer cannot include in the pension exclusion calculation the amount by which the primary taxpayer exceeded the $12,500 maximum exclusion
Please remember to enclose the 1099R Forms and other supporting schedules to support your pension exclusion.