Are Disability Benefit taxable?

What is the name of your state? California

My sister was recently disabled, and started to receive disability checks from her insurance company, or maybe from the state.

Will she need to report this on her tax return, and is this income taxable?

Thanks.

It depends. If the checks are from a private company, they are replacing wages & are taxable. The exception is if she was the one who paid the disability premiums, rather than the company. Her best bet is to call the insurance company & ask them if they will be reporting the money to her on a W-2, 1099-R, or not reporting it. Ask for the answer in writing.

If the money is taxable, she will have to save up the money for taxes herself. I suggest a dedicated bank account where she puts in money each time a disability check arrives, so that she never has the money to spend in her checking account in the first place. She should save enough to cover both state & federal taxes. A CPA or H&R Block can help her figure out how much to save.

If the money is taxable, another possibility would be to have
taxes withheld.