Generally, these payments are not taxable and you do not have to enter them into TurboTax. Per the IRS, you may be able to exclude from income any amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resulting from active service in one of the following services: armed forces, public health service of foreign service. Per the IRS, don’t include the disability payments in your income if any of the following conditions apply:
- You were entitled to receive a disability payment before September 25, 1975.
- You were a member of a listed government service or its reserve component, or were under a binding written commitment to become a member, on September 24, 1975.
- You receive the disability payments for a combat-related injury. This is a personal injury or sickness that: a. Results directly from armed conflict; b. Takes place while you're engaged in extra-hazardous service; c. Takes place under conditions simulating war, including training exercises such as maneuvers; or d. Is caused by an instrumentality of war.
- You would be entitled to receive disability compensation from the VA if you filed an application for it.
Your exclusion under this condition is equal to the amount you would be entitled to receive from the US Veterans Affairs office.
For more information please see Publication 525.
Publication 525
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