Disability Income

Generally, if you retire on disability, you must report your pension or annuity as income. Your disability payments are taxed as wages until you reach the minimum retirement age set by your employer.

What is the minimum retirement age?

Minimum retirement age is generally the earliest age at which you may receive a pension, whether or not disabled.

How does the employer report disability income for tax purposes?

Your employer may report disability income on form W-2 or on a form 1099-R. if your employer reports your disability income on a Form 1099-R, box 2a shows the taxable amount. Box 7 should show a code 3 for disability.

How do I report my disability income on my tax return?

You report all your taxable disability income on line 7 of Form 1040 until you reach minimum retirement age.

After you reach the minimum retirement age, report your disability income as a taxable pension.

How to report fully and partially taxable disability payments?

If the disability payments are partially taxable, use lines 16a and 16b of Form 1040.

If the payments are fully taxable, enter the taxable amount on line 16b (without making an entry on line 16a).