DISABILITY BENEFIT TAXATION

Employees who receive disability benefits (long-term or short-term) may be taxed on these benefits based on how the premiums are paid. If an employee contributes towards the premium for the disability coverage with post-tax dollars, the benefits, should he/she become disabled, are generally tax-free. On the other hand, if the employee does not contribute towards the premium or contributes with pre-tax dollars, the benefits received are subject to taxation.

 

If you have made changes to the taxable proportion of premiums (e.g. pre-tax contributions to post-tax contributions), be sure to discuss this change with your insurer. 

 

In addition, employers should be mindful of W-2 reporting and FICA requirements and responsibilities for claimants who have received disability income from an insurer.


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