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Hi and welcome to Just Answer!Please see for reference page 4 in this publication - http://www.irs.gov/pub/irs-pdf/p3.pdfAs we see - Disability pay, including payments received for injuries incurred as a direct result of a terrorist or military action - are excluded from taxable income.Also - see page 17 here - http://www.irs.gov/pub/irs-pdf/p525.pdfCertain military and government disability pensions are not taxable.Service-connected disability. You may be able to exclude from income amounts you receive as a pension, annuity, or similar allowance for personal injury or sickness resultingfrom active service in one of the following government services.-The armed forces of any country.-The National Oceanic and Atmospheric Administration.-The Public Health Service.-The Foreign Service.
So - if you receive Military Disability based on your service-connected disability - that payment is not taxable.But if you receive a disability pension based on years of service, in most cases you must include it in your income.Let me know if any clarification needed.
Please let me know if you need any clarification.
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