Long-term disability insurance is designed to provide compensation for those who become injured or ill and are no longer able to return to work. Payments are offered on a monthly basis based on your earnings and can offset any expenses that result from being unable to return to work.
Typically, long-term disability payments cover anywhere from 50% to 80% of the salary that you had prior to becoming disabled. The duration of long-term disability payments depends on your particular policy; some may last anywhere from 5 to 10 years. Others may have policies that insure them until they are 65.
When it comes to long-term disability payments, there are a lot of frequently asked questions, one of which is whether long-term disability payments are tax-deductible.
Take a look below to help understand just what aspects of long-term disability premiums and payments are or are not tax deductible.
Are Long-Term Disability Payments Taxable?
The answer to this question depends. In some cases, long-term disability payments are taxable. In other cases, they are not.
For example, if you have your own disability insurance policy and you make the payments, any payments you receive from long-term disability insurance are not taxable. Likewise, if your policy was obtained through your employment but you pay all of the premiums, then your monthly benefits are not taxable income.
However, if the employer makes the payments for long-term disability insurance, then long-term disability payments may be taxable. This depends on how the payments were handled by your employer.
If all employees have their payments made by the employer, and the sum of those payments is counted toward your taxable income, then payments made to you if you go on long-term disability will not be taxed.
If, however, the payments made into long-term disability by your employer are not counted as taxable income, then you any payments made to you if you go on long-term disability will be taxable.