Is a federal disability annuity taxable?

The two phases

Publication 721 treats a disability annuity in two phases. Before you reach minimum retirement age, the annuity is taxable as wages, reported on Form 1040 line 1h. Beginning on the day after you reach minimum retirement age, your payments are treated as a retirement annuity: you start recovering your cost and report the annuity on lines 5a and 5b like any other. The publication says the same withholding rules apply to a disability annuity as to a retirement annuity, even in the period when it is shown as wages.

What minimum retirement age means

Minimum retirement age is the age at which you could first receive an annuity if you were not disabled. Under CSRS it is generally based on age and service: age 55 with 30 years, age 60 with 20 years, age 62 with 5 years, or age 50 with 20 years of covered service for law enforcement officers, firefighters, nuclear materials couriers and air traffic controllers. Under FERS, it is between 55 and 57 with at least 10 years of service, depending on your birth year, and age 62 with at least 5 years.

The publication’s Table 2 for FERS with 10 years: born 1947 or earlier, 55; 1948, 55 years 2 months; 1949, 55 years 4 months; 1950, 55 years 6 months; 1951, 55 years 8 months; 1952, 55 years 10 months; 1953 to 1964, 56; 1965, 56 years 2 months; 1966, 56 years 4 months; 1967, 56 years 6 months; 1968, 56 years 8 months; 1969, 56 years 10 months; 1970 or later, 57. The calculator above looks this up from your birth year.

Worked example

Suppose, as an illustration, you were born in 1966 and retired on a FERS disability annuity with at least 10 years of service. Your minimum retirement age is 56 years and 4 months. Until the day you reach it, the annuity is wages on line 1h. On the next day it becomes a retirement annuity and the Simplified Method starts: your cost divided by the number from the table gives a fixed tax-free amount per month, and the rest is taxable. If you could have started recovering earlier on a return already filed, the publication says you can file an amended return for that year and each later year, generally within 3 years of the original due date.

Other disability-related benefits

Federal Employees’ Compensation Act payments for personal injury or sickness from your duties are like workers’ compensation, tax exempt and not treated as a disability annuity, although pay while your claim is processed, including sick leave pay and continuation of pay for up to 45 days, is taxable. Disability payments for injuries directly resulting from a terrorist attack against the United States or its allies are not included in income, and neither are payments for injuries directly resulting from a qualifying military action. If you receive tax-exempt Department of Veterans Affairs benefits for injuries from active service and later a CSRS or FERS disability annuity for the same injuries, the annuity is not tax exempt.

Unused leave and sick pay repaid

A payment for unused annual leave when you retire on disability is taxed as wages in the year received. If you repay sick leave or disability annuity payments in the same year you got them to qualify for FECA benefits, the repayment reduces your taxable amount. If you repay in a later year, you cannot deduct the repayment.

Credit for the elderly or the disabled

The publication also describes the credit for the elderly or the disabled: you qualify if you are a U.S. citizen or resident alien who is 65 or older, or under 65 and retired on permanent and total disability with taxable disability income and under mandatory retirement age. You are permanently and totally disabled if you cannot engage in substantial gainful activity because of a condition a physician certifies has lasted or can be expected to last 12 months or more or to result in death. Income limits apply, and you compute the credit on Schedule R (Form 1040).

Sources

• IRS Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits (2025): Rules for Disability Retirement (Part III): Disability Annuity; Minimum retirement age (Tables); How to report; Withholding; Other Benefits; Credit for the Elderly or the Disabled. Part II introduction on disability retirees. Read November 2, 2026.

Edition read: Publication 721 (2025), for use in preparing 2025 returns. Dollar limits and dates in this publication are for 2025; check the current publication and form instructions for your tax year. This page summarizes the publication and does not replace it.