Disability Insurance Center

Benefits And Taxes

Article 6 of 6 in Understand Your Disability Insurance Benefits

If you are receiving disability payments, then you need to know that your disability benefits can be taxable! While you may not have to pay disability benefits taxes, you need to check with your insurance provider so you can avoid trouble in the future. Knowing when your disability benefits are taxable can save the worry of what to claim as income on your tax returns.

When Disability Benefits are NOT Taxable

If you have an individual disability policy and paid your premium with after taxed dollars, your disability benefits would be tax free. This only adds to some of the great benefits of a disability insurance policy. Once disabled, you would receive disability payments totally free of taxes. Therefore, if you were making $1,000 a week before you became disabled you would bring home around $700-800 a week depending on your tax bracket. If you elected to receive 70% of your pay as a disability benefit, you essentially will bring home the same amount as a tax free disability benefit.

When Disability Benefits Can Be Taxable

There are two common scenarios that can make your disability benefits taxable:

In either case, any resulting disability benefits may be taxable. Make sure you make every effort to check with your employer about your taxable disability benefits to ensure that indeed you will have to claim the benefit as income.

Prepare yourself once you start to collect your disability benefits in order to make sure that you are not hit with a tax bill at the end of the year. Setting up quarterly tax payments may also be a way to offset the tax bill at the end of the year.

If you would like a quote on an individual disability policy that will give you tax free disability benefits by allowing you to pay premiums with after tax dollars, click here and get a free disability insurance quote today.

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