Question: Is my disability income taxable?
Answer: Money received from worker's compensation for sickness or illness is not subject to income tax. Amounts received under a private accident policy for which you pay the premiums are also nontaxable. To the extent your employer pays the insurance premiums, your benefits will be subject to tax.
The punitive damage amount in any legal settlement, if any, is generally includible in taxable income as is any interest included in the damage award.