You know how much your disability insurance will pay (or do you?) But is your disability insurance taxable? Here’s how to tell.
Is Your Disability Insurance Taxable?
Your disability insurance is:
- Taxable if you didn’t pay tax on the premiums.
- Tax-free if you paid tax on the premiums.
It’s a no-brainer to pay tax on your premiums. You want to pay tax on a small premium, not a big benefit.
So, how do you tell if you’re paying tax on your premiums?
Individual Policy
This is a policy you bought on your own. The benefit is tax-free because you’re not paying tax on your premiums (they’re not tax-deductible).
Group Policy
This is a policy you get at work, and the same rule applies:
- Taxable if you didn’t pay tax on the premiums.
- Example: Your premium is a pre-tax deduction on your paycheck.
- Example: Your employer pays the premium and doesn’t add it to your taxable income.
- Tax-free if you paid tax on the premiums.
- Example: Your premium is an after-tax deduction on your paycheck.
- Example: Your employer pays the premium and adds it to your taxable income.
If you’re a partner in a private group, it may be tougher to tell if you’re paying tax on your disability premiums. If in doubt, ask your group’s accountant.
What If Your Benefit Is Taxable?
If your benefit is taxable, work with your employer to fix this! It should be easy to get other docs to join in this request.
If you need help determining if your disability insurance is taxable, schedule a FREE Financial Pulse Assessment™. This is a 3-step process to get clarity on your finances and “test drive” our services.