Disability Pensions: When They Are Taxable
Published November 6, 2026
If you retire because of a disability, your pension may be taxable. Publication 525 (2025), Taxable and Nontaxable Income, explains the rules. This guide is general information. It is not advice about your return.
The basic rule
The publication says if you retired on disability, you must include in income any disability pension paid by your employer's plan. This is the starting point. The timing rules depend on your age. Check your age before you file.
Before minimum retirement age
Until you reach minimum retirement age, report your taxable disability payments on line 1h. That line is on Form 1040 or 1040-SR.
The publication says minimum retirement age is generally the earliest age for a pension or annuity if you are not disabled.
In plain terms, it is the age when a worker without a disability could start the same plan. Check your plan papers for it. Your plan administrator can also help you find these dates.
After minimum retirement age
Your payments are taxable as a pension or annuity after minimum retirement age. That starts the day after you reach that age. Which line you use depends on your age on that date. Report them on lines 5a and 5b of Form 1040 or 1040-SR.
For the pension rules, see our guide to the pension and annuity simplified method. Publication 575 has more on pensions and annuities.
Retirement plans are different
Payments from a retirement or profit-sharing plan are not a disability pension. That changes only if the plan provides disability retirement. The publication says those payments are reported as a pension or annuity. Read your plan documents to see which kind of plan paid you.
Lump-sum leave payments
If you retire on disability, a lump-sum payment for accrued annual leave is salary. The publication says it is not a disability payment. Include it in income in the year you receive it.
A possible tax credit
You may get a tax credit if you were permanently and totally disabled when you retired. See Publication 524 for that credit.
Military and government disability pensions
Some military and government disability pensions are not taxable. The publication lists the conditions. For example, the rule can apply if you were entitled to receive a disability payment before September 25, 1975. That date matters. Payments for a combat-related injury can also be excluded. The conditions still apply. Check each one.
Payments for an injury or illness not linked to a terrorist attack or military action are not excluded under this rule. They may still be excluded for other reasons. Our guide to VA payments that are not taxable covers VA benefits.
Common mistakes
- Treating every disability payment as not taxable. The rules depend on who paid the plan and your age.
- Treating a lump-sum leave payment as a disability payment. The publication says it is salary.
- Reporting payments after minimum retirement age on the wage line. After that age, they are reported as a pension or annuity.
Three quick questions
- Did your employer pay for the plan?
- Did you retire on disability under that plan?
- Are you below or above minimum retirement age?
Simple steps
- Find your retirement date and your minimum retirement age.
- Find out whether your employer paid for the plan and whether it provides disability retirement.
- Before minimum retirement age, report the disability payments on line 1h.
- After minimum retirement age, report the payments as a pension or annuity on lines 5a and 5b.
- Check whether any part of the payments is excluded under a military or government rule.
If you receive benefits for a workplace injury instead, see our guide to workers' compensation benefits.
Upload your documents and answer a few simple questions to start your return.
Sources: Sources: IRS, Publication 525 (2025), Taxable and Nontaxable Income (https://www.irs.gov/pub/irs-pdf/p525.pdf) This is general information, not advice about your specific return.
More guides on: Retirement and pensions
