Form 1099-R Box 7a
Code 3: Disability
The distribution was made because of the recipient’s disability.
Usual federal tax treatment
The taxable amount is generally ordinary income; the 10% additional tax usually does not apply.
What to do next
Report the distribution on Form 1040 and retain disability documentation.
Where code 3 flows on your return
The taxable portion flows to Form 1040 Line 4b (IRA) or Line 5b (pension/annuity). Because code 3 already reflects the disability exception, Form 5329 is not usually needed for that portion of the distribution, unlike a code 1 distribution.
How code 3 works
Code 3 applies when the distribution is made because the recipient meets the tax-law definition of disability under IRC section 72(m)(7): unable to engage in any substantial gainful activity because of a medically determinable physical or mental impairment expected to be of long, continued, and indefinite duration or to result in death. This is a stricter, independent standard from many disability-insurance or Social Security disability definitions.
The disability exception to the 10% additional tax has no minimum age requirement — it can apply at any age as long as the underlying disability test is met at the time of the distribution. The payer typically requires medical or plan-administrator documentation before applying code 3.
Worked example
Karen, age 38, is approved as permanently and totally disabled under her plan's documentation standard and takes a $15,000 distribution from her traditional IRA. Her IRA custodian codes the 1099-R with code 3. The $15,000 flows to Line 4b as ordinary income, and no 10% additional tax applies because of the disability exception.
Estimate this distribution
Enter Box 1, Box 2a, Box 4, your age, other income, and code 3 to estimate taxable income and possible additional tax.
Open the 1099-R calculatorFrequently asked questions
Is the disability standard for code 3 the same as Social Security disability?
Not necessarily. The tax-law definition under section 72(m)(7) requires an inability to engage in any substantial gainful activity due to a medically determinable impairment expected to be long-term or result in death. Payers and the IRS apply this standard independently of an SSA disability determination, though SSA approval can support it.
Does code 3 mean I owe no tax at all?
No — it only removes the 10% additional tax. The taxable portion of the distribution, shown in Box 2a, is still ordinary income subject to your regular federal (and possibly state) tax rate.
Is there a minimum age to qualify for the disability exception?
No. Unlike most early-distribution exceptions that require specific circumstances, the disability exception can apply to a distribution taken well before 59½, as long as the section 72(m)(7) standard is met when the distribution occurs.