I entered my early withdrawal of 401k as used for "permanent disability". Next screen says it is not taxable. In the final review of both fed and sate it shows as taxable

Because of the disability exception, your early withdrawal was not subject to the 10% penalty tax imposed on withdrawals before age 59 1/2.

All distributions from 401(k) plans are taxed as ordinary income, since the amounts contributed to such plans are not taxed when earned.

For more information, please refer to:

IRS Pub. 554 Tax Guide for Seniors