1. (a) An individual who:

   1. (1) retired on disability before the end of the taxable year; and

   2. (2) had a permanent and total disability, as determined under subsection (c), at the time of retirement;

      is entitled to a deduction from the individual's adjusted gross income for that taxable year in the amount determined under subsection (b).

2. (b) The deduction provided by subsection (a) is the amount determined using the following STEPS:

   1. (A) these amounts are attributable to contributions by the individual's employer that were not includable in the individual's gross income or are paid by the employer; and

   2. (B) these amounts constitute wages or payments in lieu of wages for a period during which the employee is absent from work because of permanent and total disability.

      STEP TWO: Determine for each week of the taxable year the amount by which each weekly payment referred to in STEP ONE exceeds one hundred dollars ($100), then add these amounts.

      STEP THREE: Determine the amount by which the individual's federal adjusted gross income for the taxable year, as defined by Section 62 of the Internal Revenue Code, exceeds fifteen thousand dollars ($15,000), or seven thousand five hundred dollars ($7,500) in the case of a married individual filing a separate return.

      STEP FOUR: Subtract from the amount determined in STEP ONE the amount determined in STEP TWO and the amount determined in STEP THREE.

   STEP ONE: Determine the amount received by the individual during the taxable year through an accident and health plan for personal injuries or sickness to the extent that:

3. (c) For purposes of this section, an individual has a permanent and total disability if the individual is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or that has lasted or can be expected to last for a continuous period of not less than twelve (12) months. An individual may not be considered to have a permanent and total disability unless the individual furnishes proof of the existence of the disability as the department of revenue may require.

As added by P.L.76-1985, SEC.3. Amended by P.L.47-2001, SEC.1; P.L.99-2007, SEC.26; P.L.146-2020, SEC.24.