How to Report Disability Retirement Pay for Taxes

If you retire due to disability, the amounts that you receive as pension or retirement annuities have to be reported as taxable income, with certain exceptions. Any amounts you receive from an accident and health plan paid for entirely by your employer must be included in taxable income. However, if you paid part or all of the plan costs, the amounts applicable to your contributions are excluded from income. Disability pensions received for military or certain other government service may be totally excluded.

Instructions

1. Determine the total amounts of disability retirement income from pensions or retirement annuities and from any accident and health plans. You do not have to report any amounts that you receive for reimbursement of medical expenses unless the expenses were deducted by you in a prior year.

2. Calculate the total costs that you contributed to any of these retirement or disability plans so that those costs can be taken into account and excluded in arriving at the taxable amount. Your employer may be able to provide this information.

3. Exclude from taxable income all disability retirement pensions or annuities received for injury or illness resulting from active military service or certain other government service including the Public Health Service, the Foreign Service or the National Oceanic and Atmospheric Administration.

4. Report amounts received under a disability plan paid for by your employer as wages. Use Line 7 on Form 1040 or on Form 1040A until you reach minimum retirement age. This is the earliest age at which you can receive a pension if you are not disabled. Report income received after reaching minimum retirement age as pension or annuity income on Line 16a and 16b of Form 1040 or on Line 12a and 12b of Form 1040A.

Tips & Warnings

• Permanent and total disability at retirement may qualify you for a tax credit depending on your total income for the year. Find computation details in the Internal Revenue Service (IRS) Pub 524.

Resources

• Complete and print Form 1040.
• Complete and print Form 1040A.