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IRS.gov Website
Publication 554
taxmap/pubs/p554-005.htm#en_us_publink100043604

Sickness and Injury Benefits(p14)

For Use in Tax Year 2013
rule
Generally, you must report as income any amount you receive for personal injury or sickness through an accident or health plan that is paid for by your employer. If both you and your employer pay for the plan, only the amount you receive that is due to your employer's payments is reported as income. However, certain payments may not be taxable to you. Some of these payments are discussed later in this section. Also, see Military and Government Disability Pensions and Other Sickness and Injury Benefits in Publication 525.
taxmap/pubs/p554-005.htm#en_us_publink100043605

Cost paid by you.(p14)

For Use in Tax Year 2013
rule
If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return. If your plan reimbursed you for medical expenses you deducted in an earlier year, you may have to include some, or all, of the reimbursement in your income.
taxmap/pubs/p554-005.htm#en_us_publink100043606

Disability Pensions(p15)

For Use in Tax Year 2013
rule
If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer. You must report your taxable disability payments as wages on line 7 of Form 1040 or Form 1040A or on line 8 of Form 1040NR until you reach minimum retirement age. Minimum retirement age generally is the age at which you can first receive a pension or annuity if you are not disabled.
Deposit
If you were 65 or older by the end of 2013 or you were retired on permanent and total disability and received taxable disability income, you may be able to claim the credit for the elderly or the disabled. See Credit for the Elderly or the Disabled, later. For more information on this credit, see Publication 524, Credit for the Elderly or the Disabled.
Beginning on the day after you reach minimum retirement age, payments you receive are taxable as a pension or annuity. Report the payments on lines 16a and 16b of Form 1040, on lines 12a and 12b of Form 1040A, or on lines 17a and 17b of Form 1040NR. For more information on pensions and annuities, see Publication 575.
taxmap/pubs/p554-005.htm#en_us_publink100043608

Retirement and profit-sharing plans.(p15)

For Use in Tax Year 2013
rule
If you receive payments from a retirement or profit-sharing plan that does not provide for disability retirement, do not treat the payments as a disability pension. The payments must be reported as a pension or annuity.
taxmap/pubs/p554-005.htm#en_us_publink100043609

Accrued leave payment.(p15)

For Use in Tax Year 2013
rule
If you retire on disability, any lump-sum payment you receive for accrued annual leave is a salary payment. The payment is not a disability payment. Include it in your income in the tax year you receive it.
taxmap/pubs/p554-005.htm#en_us_publink100043610

Long-Term Care Insurance Contracts(p15)

For Use in Tax Year 2013
rule
In most cases, long-term care insurance contracts generally are treated as accident and health insurance contracts. Amounts you receive from them (other than policyholder dividends or premium refunds) generally are excludable from income as amounts received for personal injury or sickness. However, the amount you can exclude may be limited. Long-term care insurance contracts are discussed in more detail in Publication 525.
taxmap/pubs/p554-005.htm#en_us_publink100043611

Workers' Compensation(p15)

For Use in Tax Year 2013
rule
Amounts you receive as workers' compensation for an occupational sickness or injury are fully exempt from tax if they are paid under a workers' compensation act or a statute in the nature of a workers' compensation act. The exemption also applies to your survivors. The exemption, however, does not apply to retirement plan benefits you receive based on your age, length of service, or prior contributions to the plan, even if you retired because of an occupational sickness or injury.
EIC
If part of your workers' compensation reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier.
taxmap/pubs/p554-005.htm#en_us_publink1000259419

Return to work.(p15)

For Use in Tax Year 2013
rule
If you return to work after qualifying for workers' compensation, salary payments you receive for performing light duties are taxable as wages.
taxmap/pubs/p554-005.htm#en_us_publink100043614

Other Sickness and Injury Benefits(p15)

For Use in Tax Year 2013
rule
In addition to disability pensions and annuities, you may receive other payments for sickness or injury.
taxmap/pubs/p554-005.htm#en_us_publink100043615

Federal Employees' Compensation Act (FECA).(p15)

For Use in Tax Year 2013
rule
Payments received under this Act for personal injury or sickness, including payments to beneficiaries in case of death, are not taxable. However, you are taxed on amounts you receive under this Act as continuation of pay for up to 45 days while a claim is being decided. Report this income on Form 1040, line 7; Form 1040A, line 7; on Form 1040EZ, line 1; or Form 1040NR, line 8. Also, pay for sick leave while a claim is being processed is taxable and must be included in your income as wages.
EIC
If part of the payments you receive under FECA reduces your social security or equivalent railroad retirement benefits, that part is considered social security (or equivalent railroad retirement) benefits and may be taxable. For a discussion of the taxability of these benefits, see Social Security and Equivalent Railroad Retirement Benefits, earlier.
taxmap/pubs/p554-005.htm#en_us_publink100043617

Other compensation.(p15)

For Use in Tax Year 2013
rule
Many other amounts you receive as compensation for sickness or injury are not taxable. These include the following amounts.