Is Long Term Disability Taxable?

Long term disabilities can severely inhibit a person’s life and work.  Long term disabilities can involve musculoskeletal and connective tissue disorders.  Back and neck pain and injuries as well as joint and muscle disorders are some of the leading causes of long term disability claims.  These types of disabilities can prohibit people and employees from making a living.  For many, long term disability insurance helps for these extended periods of time when money may be an issue, others may have to fight to get these benefits through a long term disability lawsuit.

Disability income insurance provides the opportunity of the disabled to have some sort of income.  This income may or may not be taxable depending on some specific factors.  First, government disability insurance benefits may be taxable.  This all depends on what type of government disability benefit the person is receiving.  For example, Social Security benefits may be taxable if your gross income plus one-half of your Social Security benefits exceeds the base amount the person filed for.  Disabled persons may also enroll in Medicare.  Premiums paid can be deducted as medical expenses, but benefits through Medicare are not taxable.  There are many other forms of government disability insurances and all have specific requirements that will inform people of whether their benefits are taxable.

Individual disability income insurance benefits are generally paid with after-tax dollars, and because of this the benefits received are tax free.  Individuals cannot then deduct their premiums paid as medical expenses.  If an employer pays for a disability insurance policy on the employee, the employer receives the benefit which is not taxable when it has been received by the company.   Taxability of individual disability income insurance depends greatly on whether premiums were paid using after-tax or pre-tax dollars and whether the individual or the employer paid for the premiums.

The taxation of employee disability benefits can be difficult to understand.  Information on how the Internal Revenue Service (IRS) treats long term disabilities is important to both individuals and employers follow the regulations.  Generally, an employer should provide an outline of the disability benefits the employee may receive, as well as information on W-2 tax reporting.  Tax professionals can help answer questions individuals and employees may have on taxable benefits. If you have trouble claiming or receiving your benefits, a long term disability SSDI attorney can help.

In short, disability proceeds are taxable to the individual if their employer paid of all the premiums and did not include these amounts on their gross income.  If the individual paid the premiums with after-tax income, disability insurance benefits are tax exempt.  There are different rules for government disability programs such as the Veterans Administration, Social Security, and the military.  There are also different rules for worker’s compensation to be considered.  Studying the laws and regulations of taxable disability benefits and premiums can help the individual determine if their long-term disability is taxable.  Many professional tax consultants know exactly what the rules and regulations are and can be of further assistance.