How to Report State Disability Payments on Taxes

People who have retired due to disability must report any of those payments on their taxes. This is considered taxable income. However, if an employer paid for medical bills or money was received from an accident, then this must be reported as taxable income.

• Calculate the total amount of disability payments. The payments that come from health plans, accidents and pension annuities should be included in this amount. Reimbursement for medical expenses does not have to be reported unless you deducted the expenses within the prior year.


• Determine the total amount contributed by you to the disability plans. These amounts need to be excluded when figuring the taxable amount. If you are unsure about the amounts, then ask your employer for help.


• Exclude any income from injury as a result of a government or active military service. It is possible to become injured or hurt while on duty for the military or government organization. If you receive disability from these government departments, then you do not have to report this income on your tax return.  


• Report the amounts as wages. Disability payments received from employers are considered wages. The earliest age a person can receive a pension without being disabled is 62. To report the payments, use Form 1040 A or 1040. Fill Line 7 on the 1040 form until reaching minimum retirement age. After reaching retirement age, pension income is reported on line 12a and 12b on the 1040A form, and line 16a and 16b on the 1040 form.