How Is Disability Pension Income Taxed?


Quick Answer

Income from employer-provided disability pensions are taxable but income from certain military and government disability pensions are not, according to Nolo. Disabled individuals may receive tax credits for permanent and total disability upon retirement.

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Full Answer

Laws regarding taxation of disability benefits are complex, advises Forbes. Disability pension funds can be saved tax-free but must be taxed upon retirement. The taxation of disability pension proceeds payable to an ex-spouse may be treated differently than the proceeds paid to the disabled spouse. Other disability payments, such as from a public welfare fund, workers' compensation, disability payment proceeds from "no-fault" automobile policies and compensation for permanent disfigurement and loss of body parts and function are not taxable.

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