Are disability benefits taxable income?

I retired from the police department in 2016 on a duty related disability.  I received a LINA Benefit W2 in 2017 that shows wages (box 1).  I didn’t work or earn wages from the dept. in 2017 and my benefit was suppose to be tax free.  Can you explain why I have taxable income on this W2?

IsabellaG
Expert Alumni

Retirement tax questions

If your employer paid for the disability insurance, or if  payments you made were pre-tax,  this income is taxable to you.

If you paid for the disability insurance yourself out of post tax income (in other words, you paid tax on that income and the payments weren't excluded from your W-2 income when you were working), this would not be taxable to you.

The IRS says "If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A until you reach minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled."

See   this link under Disability Pensions.

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