- Why You Can't Be Without It
- If You Can't Work, Where Will the Money Come From?
- Company Plans Are Only Part of the Solution
- How Much Is Enough?
- Policy Options
- How to Shop for an Individual Policy
- Will Your Disability Benefits Be Taxable?
Both short- and long-term disability benefits are taxable to varying degrees, depending on the type of policy. Here are the rules under current law:
- 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 |
Securities and advisory services are offered through LPL Financial (LPL), a registered investment advisor and broker-dealer (member FINRA/SIPC). Insurance products are offered through LPL or its licensed affiliates. Franklin Mint Federal Credit Union and Mint Wealth Advisors are not registered as a broker-dealer or investment advisor. Registered representatives of LPL offer products and services using Mint Wealth Advisors, and may also be employees of Franklin Mint Federal Credit Union. These products and services are being offered through LPL or its affiliates, which are separate entities from, and not affiliates of, Franklin Mint Federal Credit Union or Mint Wealth Advisors. Securities and insurance offered through LPL or its affiliates are:
| Not NCUA Insuredor Any Other Government Agency | No Credit Union Guarantee | Not Credit Union Deposits | May Lose Value |
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Financial Learning Center content created by TrueBridge, Inc. The information provided is based upon sources and data believed to be accurate and reliable. The content contained herein is intended for information and illustrative purposes only, should not in any way be construed as a personal recommendation, and should be used in conjunction with individual professional advice.
