Short-term disability is reported to the IRS on your regular Form 1040. These benefit payments are considered sick pay, and they are included as part of your regular income for tax purposes. If you owe taxes on these benefits, you will be taxed at your normal tax rate. Your overall income for the year will determine your tax rate based on which tax bracket you fall into. Remember that income taxes are often not withheld from these benefit payments unless you complete a Form-W4S and return it to your insurance company.