Disability Benefit Tax Tip No. 1

29 Aug Disability Benefit Tax Tip No. 1

The rules about whether disability benefits are taxable can occasionally be confusing. Below is one tip regarding taxation of disability benefit for a very specific group of people: police officers and firefighters.

Tax-Free Disability Benefits for Police Officers and Firefighters

If you are a retired police officer or firefighter who stopped working due to disability, a portion of your duty disability benefits may be tax-free. The level of tax savings depends on your level of disability, and you may be entitled to receive 100% of your benefits tax free. Plus, when you pass away, your surviving spouse will continue to receive the same percentage of their survivor’s benefit tax-free.

Here’s an example to show you how this might work in practice:

  • Your retired firefighter benefits: $5,000 per month
  • Your disability tax savings: 75%
  • Your tax-free income: $3,750 per month

Now, let’s say that your wife elected to receive 50% of your monthly benefit after your death:

  • Her surviving spouse benefits: $2,500 per month
  • Her disability tax savings: 75% (This percentage remains unchanged!)
  • Her tax-free income: $1,875 per month

In summary: Your spouse’s survivor’s benefits are taxable in the same proportion as your retiree benefits.


Parkshore Wealth Management is a family-owned, independent, fee-only Registered Investment Advisor serving the greater Sacramento area with an office in Roseville, CA. We partner with financially responsible individuals and families who are eager to take positive steps that will allow them to use their money to build the life they desire. The firm is led by Harold Anderson, CFP®, and Daniel Andersen, CFP®, both members of NAPFA, the country’s leading professional association of fee-only financial advisors.

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