I'm not actually sure that's correct. Disability payments you earned from working would be taxable if you did not pay the premiums yourself out of pocket. In other words, if you paid the premiums with pre-tax deductions, or your employer paid the premiums tax-free to you, then it should be taxable income. For the first year of disability, it is considered earned income subject to social security and medicare tax, then from the second year onward, it is unearned income and you don't pay social security or medicare tax but you do pay income tax.
It might be tax-free for New York State income tax purposes, if they passed a special law exempting state employee benefits from state tax, but I believe it will still be taxable federal income.
I would need to see citations from the tax law to be proven otherwise.
