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If your disability is taxable, report it on the Federal return. When you complete the state return, answer all of the questions regarding items of income that may be treated differently by your state.

You must report as income any amount you receive for your disability through an accident or health insurance plan paid for by your employer:

• If both you and your employer have paid the premiums for the plan, only the amount you receive for your disability that's due to your employer's payments is reported as income.
• If you pay the entire cost of a health or accident insurance plan, don't include any amounts you receive for your disability as income on your tax return.
• If you pay the premiums of a health or accident insurance plan through a cafeteria plan, and you didn't include the amount of the premium as taxable income to you, the premiums are considered paid by your employer, and the disability benefits are fully taxable.
• If the amounts are taxable, you can submit a Form W-4S, Request for Federal Income Tax Withholding From Sick Pay to the insurance company, or make estimated tax payments by filing Form 1040-ES, Estimated Tax for Individuals.

Amounts you receive from your employer while you're sick or injured are part of your salary or wages.

• Report the amount you receive on the line "Total amount from Form(s) W-2, box 1" on Form 1040, U.S. Individual Income Tax Return or Form 1040-SR, U.S. Tax Return for Seniors.
• You must include in your income sick pay from any of the following:
  • A welfare fund
  • A state sickness or disability fund
  • An association of employers or employees
  • An insurance company, if your employer paid for the plan

See this IRS FAQ for more information.