What is Disability Severance Pay?

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  • Written By: Mary McMahon
  • Edited By: Kristen Osborne
  • Last Modified Date: 19 August 2019
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Disability severance pay is compensation provided to a person who needs to leave a job because of disability. It consists of a lump sum payout, typically covering several months of employment, and provides income until long-term disability benefits kick in. The setting where disability severance pay most commonly comes up is for veterans of the military who are obliged to separate from the service because of acquired disabilities. Other types of professions may offer this benefit.

Providing people with disability severance pay is not an admission of wrongdoing and creates no legal liability for the employer. It is offered to people as a token of appreciation for their service and a recognition of the fact that filing for disability benefits can take time, and being left without money to live on during this period could leave people in financial trouble. The amount of disability severance pay available depends on the employer and the setting; it may be two months pay, for example, or much more.


This benefit is usually taxable, except in some special circumstances. It is important to keep track of the payment and declare it on taxes. Accountants can help people with managing their disability severance pay to reduce tax liability and other problems and people may find it helpful to put a percentage aside in savings to pay the tax bill when it comes due, as taxes are not collected when the payment is made, but rather when people file their taxes for the year.

To qualify for disability severance pay, people must usually be forced to leave their jobs because of an acquired disability, with clear documentation illustrating the facts of the situation. In the case of the military, people are also eligible for disability benefits if they can show that their disability was acquired because of their service. Someone who develops an autoimmune disease and is forced to retire, for example, could get disability severance pay but not disability compensation. A person who loses two limbs in a conflict would get disability benefits because theirs is a service-acquired disability.

Employees can consult the human resources department for information about disability service pay and other benefits they may be entitled to. If people run into problems claiming benefits provided by their employers, an attorney can provide assistance. In some communities, free legal aid is available to people below a certain income and can be useful for people who are having trouble getting access to their rightful employee benefits.


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