If you received a form 1099-R with a distribution listed in box 1 and code 3 in box 7 it would be treated as taxable income in TurboTax. This is so because most disability income reported on a form 1099-R is taxable. If it is not taxable, then it would normally not be reported to you on a tax form.
If there was a taxable amount listed in box 2, then that amount would show up for the taxable income on your tax return. But if box 2 was left blank, then the amount in box 1 would show as taxable.
So it would be best to have the income treated as VA disability income that is not taxable and thus not reported on a 1099-R form.
If the income is not taxable but is still reported on the 1099-R form, you can enter a deduction in the "Other Income" line on your form 1040 as follows and attach a statement to your tax return explaining why the income is not taxable:
1. Find the "Income and Expenses" menu option in TurboTax
2. Find "Less Common Income" and then "Miscellaneous Income, form 1099-A, 1099-C and edit that entry
3. On the next screen click on "Other Reportable Income"
4. You will find an option to type in a description of your adjustment and you will enter your exempt income as a negative amount
Thus, the income will go in as pension income and then be cancelled out by an equal negative adjustment on your form 1040.
I hope this has been helpful, and I really appreciate your service!
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
