In general, if you pay premiums for disability insurance, out-of-pocket (after tax) then an insurance payout when you become disabled is not taxable income. However, if you pay the premiums with pretax deductions, or if the premiums are paid tax-free by your employer, then the disability income is considered taxable income, and you will receive a W-2 for it at the end of the year.
Then, if you are receiving employer paid disability on a W-2, I believe it is considered earned income and subject to Social Security and Medicare tax in the first year (assuming you are less than retirement age) but not in the following years (but I would have to double check this).
