Disability Insurance and Taxes
Disability Benefits That Are Not Taxable
Disability Benefits are not taxable if the policy premiums are paid by post-tax dollars. When you take out an individual disability policy that you pay for yourself, you’ll be using money that you’ve already paid income tax on to pay the premiums. If you become disabled and receive disability benefits, the funds you receive will not be taxable.
Disability Insurance Taxable Benefits
Typically disability insurance benefits paid under a group disability benefit program are taxable as ordinary income. That’s because the policy premiums are either paid by the employer or are paid by the employee with pre-tax dollars under a payroll deduction plan. Keep in mind that any benefits you receive under a policy with premiums paid with pre-tax dollars are subject to income tax liability.