Disability Pension Income
Generally, taxpayers who retire on disability must include all of their disability payments in income. Disability payments are taxed as wages until the taxpayer reaches the minimum retirement age (set by the employer). After the taxpayer reaches the minimum retirement age, disability payments are treated as pension income.
Minimum retirement age is generally the earliest age at which taxpayers may receive a pension whether or not they are disabled.
When disability pay is treated as wages, it might affect the earned income tax credit.