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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:
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 |
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