Disability Pension

• You may receive a disability pension prior to retirement age. If so, pay close attention to the form you receive from the company for your taxes. You may find that the Internal Revenue Service considers your disability pension wages until you reach early retirement age. Any accrued annual leave you receive is also in the wage category for federal income taxes. Retirement or profit-sharing plan payments that are not disability-related are not wages, but are a pension or annuity.
  
  

Social Security Disability

• If you receive Social Security disability and no other income, you do not pay taxes on your Social Security disability payments. Combined income determines whether you owe taxes. Combined income is your nontaxable income plus half your Social Security disability and all of your adjusted gross income. If this totals more than $25,000, you may owe taxes if you file as a single taxpayer. Taxpayers who file married filing jointly pay tax on a combined income of $32,000 or more. The IRS taxes 50 percent of your Social Security disability between $25,000 and $34,000 as a single filer and between $32,000 and $44,000 as a married filer. If you make more than $34,000 as a single filer or $44,000 as a joint filer, the IRS taxes 85 percent of your Social Security disability benefits. The IRS never taxes more than 85 percent of your Social Security disability.
  
  

Disability Insurance

• If you have private disability insurance paid by your employer, you must pay taxes on your private disability insurance annuity or payments to you. If you paid your own private disability insurance premiums, you do not pay taxes on the benefits. If your disability plan pays for your medical expenses, you cannot deduct paid medical expenses on your federal income taxes. If you received reimbursement this year for deducted items last year, the IRS expects you to claim the reimbursement as income.
  
  

Veterans' Benefits and SSI

• Veterans' benefits for disabilities do not require reporting to the IRS. The IRS does not tax grants for homes designed for wheelchair living for veterans or grants for specialized motor vehicles for loss of sight or limbs for veterans. The IRS does not tax Supplemental Security Income received as a result of your disability. SSI benefits are not taxable.