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Is disability income taxable?

SOLVEDby TurboTax5900Updated December 10, 2023

Disability benefits you receive from the Department of Veterans Affairs (VA) aren't taxable and don't need to be reported on your return. However, Military Disability Retirement pay could be taxable if reported on form 1099-R.

Generally, Social Security Disability Benefits (SSDI) aren't taxable unless you have substantial additional income (more than $25,000 for an individual or $32,000 for married filers).

Workers' compensation benefits are not normally considered taxable income on your federal or state return. There is an exception when you receive both workers' compensation and Social Security (or Railroad Retirement) benefits. If part of your workers' compensation reduces your Social Security, that part may be taxable.

Disability benefits for loss of income or earning capability resulting from injuries under a no-fault auto insurance policy aren't taxable either.

Disability paid by an insurance company for things like lost wages, loss of limb, or loss of sight may or may not be taxable, depending on circumstance:

  • If the premiums were paid by your employer and weren't included in your taxable income, the disability is taxable.
  • If you paid the premiums out of your own pocket or with payroll deductions that came out of your after-tax income, the disability isn't taxable.
  • If you and your employer jointly paid the premiums, only the disability amount covered by your employer's payments are taxable.

If you retired due to a disability, the pension you receive through an company-paid plan counts as wage income until you reach the minimum retirement age (the age at which you can receive a pension if not disabled). Once you reach that minimum retirement age, the pension is no longer reported as wage income but as pension income.

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