Tax exemption for 3/4 accidental disability pension (on the job incurred)

[joel]

Please furnish me with the Code Section that makes these payments free of federal income tax.

[SoCalActuary]

Look to Sec 104, in which the disability payment is charged to the employee as an after-tax contribution while working.

Several gov't plans have this feature. Their tax disclosures explain their intent to treat these payments as accident and health payments.

[JAY21]

Joel, don't assume that all disability payments are tax-free. In fact most programs associated with retirement plans probably are not. SoCal describes a plan that has obviously tried to structure the plan in a manner that gives them the best "argument" for treating the disability income as tax free. The IRS has taken a pretty narrow view of what qualifies. Other factors for claiming tax-free status are the disability cannot be tied to age or service or retirement benefits under the plan. It has to have been established as a clearly separate accident and health program (although I believe it's ok if its' combined in the same plan doc as a retirement plan if clearly a separate program with different types of benefits than the retirement plan). In short, it needs to be structured properly, and even then be prepared for a fight.