Is military disability severance pay taxable?
Disability under certain circumstances is not taxable even though it will appear on a W2 and taxes wil be withheld at 25% Medical disability severance pay from the armed forces is not taxable if related to physical injury or physical sickness under US Code Title 26 Sub A Ch 1 Sub B Part III section 104 (see below) (a) In general Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include – (1) amounts received under workmen’s compensation acts as compensation for personal injuries or sickness; (2) the amount of any damages (other than punitive damages) received (whether by suit or agreement and whether as lump sums or as periodic payments) on account of personal physical injuries or physical sickness; (3) amounts received through accident or health insurance (or through an arrangement having the effect of accident or health insurance) for persona
