Are Disability Benefits Taxable?

Posted on Thursday, December 26, 2013

Have you decided to include disability insurance as part of your financial plan? If so, the next decision is how to pay the premiums. Here's why: The choice you make now can affect the taxability of the benefits received later.

For example, say your employer offers disability insurance as part of a cafeteria plan. When you sign up, the premiums are deducted from your paycheck before taxes. You're getting a current break in the form of excluding the premiums from income, and later payouts of policy benefits are generally taxable to you.

What if you pay part of the premium with after-tax income and your employer pays the rest? In that case, policy benefits are split into taxable and nontaxable portions.

Illustration: You pay 40% of the premium and your employer pays 60%. Benefits are 60% taxable.

If you opt to buy a policy yourself, premiums are not deductible on your personal tax return, and benefits you collect are not taxable.

Like other aspects of financial planning, choosing insurance involves weighing your alternatives and selecting what's most suitable for achieving your goal of protecting and growing assets. Give us a call. We'll help ensure that your financial plan remains on track.

Posted in Tax And Accounting Topics For Business

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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