Income Taxes and IMRF Disability

for Original ECO Plan Members

Disability Benefits Under the ECO Plan

If you are eligible for disability benefits, you might have the choice to receive benefits under the Regular/SLEP plan or under the ECO plan. To read about the differences in Disability benefits under the ECO plan, click here.

Federal Income Tax

Any IMRF disability benefit payments you receive will be subject to federal income tax.

State income tax

Any IMRF disability benefit payments you receive will not be subject to Illinois state income tax.

If you are a resident of another state, please check with your state’s Department of Revenue to learn whether you will pay that state’s income tax on IMRF disability benefits.

Disability Payment Agreements and taxes

If you entered into a Disability Payment Agreement, you are required to repay IMRF any prepayments. These are handled differently for tax purposes.

If you repay IMRF after the year in which the prepayment occurred, you may end up paying more in taxes. Learn more about how to report repayments in IRS Publication 525, or discuss this with your tax advisor or the IRS.

Tax deduction for permanently disabled public safety employees

Permanently disabled public safety employees are eligible to take a tax deduction of up to $3,000 on their federal income tax return for health insurance or long term care insurance premiums paid by IMRF to the insurance company or employer.

If you are approved for total and permanent disability benefits and wish to take advantage of this provision, please contact IMRF to obtain the appropriate application.

For additional details, including what positions meet the IRS definition of a public safety position, see IRS Publication 575, Pension and Annuity Income, or talk with your tax advisor.