“After his death, I received a letter from the disability insurance company stating that I would be receiving a lump sum death benefit which they sent to me. I have now received a 1099-MISC from them with the amount I received in the other income box. Do I need to include this as income on my return?”--->I guess it depends on the situation;since his lump sum claim is from a private or corporate source, one set of rules applies. ASlong as he paid for the insurance premiums out of his own pocket and did not deduct them in any way, then all proceeds, lump sum or otherwise, are tax-free. If his employer paid the premiums or your spouse deducted them on his( or your return as MFJ filer) tax return, then they are taxable as ordinary income on Form 1040 line 21, other income. Income from long-term disability could come in several forms. It is essential to correctly determine whether it is taxable or not. Incorrectly categorizing it as non-taxable could result in a sizable unexpected liability at tax time.For example, Sick pay and disability pension are generally taxable. Worker's compensation, accelerated death benefits from life insurance policies and qualified long-term care insurance benefits are usually not taxable. Disability pension that is received before retirement age is taxable as wages, while after retirement age, it is taxable as a pension.However, there are exceptions to every rule. Sick pay is not taxable if it is worker's compensation or if the payments are the benefit of an accident or health insurance plan that your spouse paid for. For instance, as long as your spouse pays for a portion of the plan, that portion of the benefits will not be taxable.
Please visit the IRS Website; Publication 525 (2010), Taxable and Nontaxable Income