Your short-term disability benefits are taxable or tax-free depending upon how the plan premiums are paid. States with statutory short-term disability plans have special rules.
The portion of LTD benefits you receive that is paid by an employer is taxable to you. Federal, state, and local taxes are withheld; Social Security and unemployment taxes are excluded.
The portion of LTD benefits you receive that is paid by you is tax-free, except if you pay with pre-tax dollars.
If you are an employee, self-employed, a partner in a partnership, or owner of a corporation and own an individual disability income policy, it's a good idea to check with your tax professional to determine whether your benefits are taxable. Also refer to the chart below to determine if your LTD benefits are taxable.
Individual Disability Policies: Are Your Long-Term Disability Benefits Taxable?
Who Pays the Premiums?
Benefits Are Payable to Whom?
Who Owns the Policy?
Are the Premiums Tax Deductible?
Are the Benefits Tax-Free or Taxable?
Individual
Individual
Individual
No
Tax-Free
Individual
Individual
Individual
Yes
Taxable
Employer
Individual
Individual
No
Taxable
Self-employed (sole proprietor)
Sole Proprietor
Sole Proprietor
No
Tax-Free
Partnership
Partner
Partner
No
Tax-Free
Partnership
Partnership
Partnership
No
Tax-Free
Corporation
Corporation
Corporation
No
Tax-Free
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