Illness or injury is a fact of life. This life event discusses the tax implication of an illness or disability due to injury, temporary or permanent, where you, a spouse, or dependent may have received compensation. 

Generally, disabilities are categorized as either temporary or permanent. Usually, all disabilities are categorized as temporary and then move to permanent. A Temporary disability is defined an illness or injury from which a person will recover. A disability becomes permanent when it has been determined that the person will not recover.

The disability information has been separated into two parts. Use the links below to select the topic you would like to view.

Temporary Disability:

Permanent Disability:

Temporary Disability

Disability Sick Pay
Amounts you receive from your employer while you are sick or injured are part of your salary or wages. You must include in your income payments made by any of the following: 

However, if you paid the premiums on an accident or health insurance policy, the benefits you receive under the policy are not taxable. 

Disability Workers' Compensation
Certain sickness and injury benefits are not taxable. Worker's Compensation is not taxable if paid under a workers' compensation act or similar state program and paid due to a work related sickness or injury.

However, more payments received after returning to work are taxable.

Accident or Health Insurance
Any payments or benefits you received from an Accident Insurance or Health Insurance policy you purchased are not taxable.

However, if an employer or someone else paid the Accident Insurance or Health insurance premiums, then any payments received due to illness or injury would be taxable income.

Physical Injury
The following types of benefits are all paid due to a physical injury.

Permanent Disability

Disability Pensions
Generally, you must report as income any amount you receive for your disability through an accident or health insurance plan that is paid for by your employer. If both you and your employer pay for the plan, report as income only the amount you receive for your disability that is due to your employer's payments. However, certain payments may not be taxable to you. Your employer should be able to give you specific details about your pension plan and tell you the amount you paid for your disability pension. 

If you are retired on disability, payments you receive are taxed as wages until you reach minimum retirement age. Generally, minimum retirement age is the age at which you can first receive a pension or annuity if you are not disabled. See Disability Income in the Tax Guide help for additional information.

Disability Schedule R
Schedule R is where a credit can be taken for the disabled. A person is permanently and totally disabled if both 1 and 2 apply. 

1. He or she cannot engage in any substantial gainful activity because of a physical or mental condition, and
2. A physician determines that the condition has lasted or can be expected to last continuously for at least a year or can lead to death. 

There are income limits for this credit even if you met the definition of  Permanent and Total Disability. These limits are:

1. If you are Single, Head of household, or Qualifying widow(er) and the amount on Form 1040, is $17,500 or more, then you cannot take the credit.
2. If you are Married filing a joint return and only one spouse is eligible for the credit and the amount on Form 1040, is $20,000 or more, then you cannot take the credit. 
3. If you are Married filing a joint return and both spouses are eligible for the credit and the amount on Form 1040, is $25,000 or more, then you cannot take the credit. 
4. If Married Filing Separate and the amount on Form 1040, is $12,500 or more, then you cannot take the credit. 

If you have met the definition of Permanent and Total Disability and do not exceed the income limits, then complete Schedule R.

The credit is 15% of the disability income you received. If you are Single, Head of household, or Qualifying widow(er), then the maximum amount is 5,000. If you are Married filing a joint return, then the maximum is $7,500.

Form 2441
If you pay someone to care for your spouse or dependent so you can work or look for work, the following tax assistance is available.

You can exclude from income benefits provided under your employer's qualified dependent care assistance plan. You may be able to exclude up to $5,000. The care must be provided for your spouse or dependent who is not capable of self-care. 

If you pay someone to care for your spouse or dependent who is not capable of self-care, you may be able to get a credit of up to 30% of your expenses. You must pay these expenses so you can work or look for work. These options are available on Form 2441, Child and Dependent Care Expenses. 

Schedule A
You can deduct medical and dental expenses for you, your spouse, and your dependents.

Medical expenses include payments you make for the diagnosis, cure, mitigation, treatment, or prevention of disease or for treatment affecting any part or function of the body. They also include the cost of transportation for needed medical care and payments for medical insurance

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