As with most other things having to do with taxes and your tax return, the answer to, “Is my disability pension taxable?” is, “It depends.” Getting your maximum refund will depend on knowing the details of your own particular situation.
You must claim as income on your tax return disability pension from a plan that your employer paid for. It goes on line 7 of Form 1040 or Form 1040A when you do your taxes. The day after you turn minimum retirement age, the payments you receive are taxable as a pension or annuity and not wages.
However, if you receive payments in lump-sum for accrued annual leave, do not count these as disability payments, even if you retired on disability. Pay very close attention to every payment that you receive so that your tax refund won’t be impacted. Whether or not you get that maximum refund depends on how you report the money you receive.
TaxSlayer.com tax software can help, of course, but it still helps to know the basics. For instance, you may be able to exclude from your income any disability pension associated with serving in the Armed Forces of any country, and certain non-military government service as well. You do not need to include as income any disability payments you get for injuries from a terrorist or military action.
These are only a few of the scenarios you may see if you receive disability payments, and how they may affect your tax refund. Check out TaxSlayer.com’s Help Center for a complete resource to our help articles.