Is disability income taxable?

How your disability income is taxed depends on your situation.

• Department of Veterans Affairs (VA) disability benefits aren't taxable and don't need to be reported on your return. However, Military Disability Retirement pay could be taxable if reported on Form 1099-R.
• Social Security Disability Benefits (SSDI) aren't taxable unless you have substantial additional income (more than $25,000 for an individual or $32,000 for married filers).
• Workers' comp isn't taxable. If you also received Social Security (or Railroad Retirement) benefits, you may be taxed on some of this income.
• Car insurance disability benefits for no-fault accidents aren't taxable.
• Disability income paid by an insurance company may or may not be taxable:
  • If the premiums were paid by your employer and weren't included in your taxable income, the disability is taxable.
  • If you paid the premiums out of your own pocket or with payroll deductions that came out of your after-tax income, the disability isn't taxable.
  • If you and your employer jointly paid the premiums, only the disability amount covered by your employer's payments are taxable.
• If you retired due to a disability and receive an company-paid pension, it's taxed as wage income until you reach retirement age.