05 Jun How are my disability benefits taxed?

Q. New Jersey state disability payments are taxed on the federal return. When completing the worksheet for 2025 income, there is no line for state disability. Am I correct not to report the income?
— Uncertain

A. The specifics matter here.

New Jersey generally excludes the taxation of disability benefits, said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown.

The IRS, however, determines taxation based on how disability benefits are funded.

“Programs like Workers’ Compensation and Veterans Administration benefits are tax-free. Social Security Disability Insurance payments are taxed just like Social Security Retirement benefits,” he said.

We recommend you consult with a tax preparer to make sure your benefits are considered properly.

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This story was originally published in June 2026. 

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