The income you receive from disability insurance benefits may or may not be taxable. The taxability of disability benefits depends on what type of benefits you receive, whether you’re paying your premiums with pre-tax or after-tax dollars, and who paid the premiums (you or your employer).
Individual disability insurance is more straight-forward – you’re paying the premiums with after-tax dollars, so the benefits you receive are tax free.
If you have group disability coverage through your employer, the taxability of your benefits depends on who is paying the premium – you or your employer. If you’re paying the premium using after-tax dollars, then the benefits received are income tax free. If your employer is paying the premiums and does not include the cost in your gross income, then your benefits would be taxable.
If you’re sharing the premium (employer pays part of it and you pay the rest), then your tax liability will be split as well. The percentage of benefit related to your employer-paid share would be taxable – the percentage of benefit related to your share would be income tax free.
Give us a call at 1-888-972-0024 if you have any other questions or would like a quote for disability insurance – you can also CLICK HERE to e-mail us.