Dear
According to IRS Publication 525,
Your wife must include as income, any disabiltiy pension she receies that was udner a plan that was paid for by her employer until she reaches normal retirment age if she were not disabled. It would be reported on Line 7 of form 1040 or form 1040A.
Beginning on the date she becomes eligible for retirement, she would begin to report the income as taxable pension rather than as wages. At this time the income wojld be reported on lines 16a and 16b of form 1040 or lines 12a and 12b of form 1040A.
REFERENCES: http://www.irs.gov/pub/irs-pdf/p525.pdf#search=%22is%20disability%20pension%20taxable%20income%20irs.gov%22
Tax Preparer
GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee