One question we hear often is, “Are my disability insurance benefits taxable to me?” If the premium for your disability coverage is paid with after-tax funds, then benefits received from a disability policy would not be taxable income. So the full amount of benefits received while on claim would be spendable money for you and your family.
However, if you deduct the premiums for disability insurance, or your employer pays for the policy and does not ‘gross up’ the premium to you, then benefits received would be taxed as ordinary income. A few employers ‘gross up’ the cost for disability coverage to their employees as income. This would allow the benefit received during a claim to be non-taxed to the employee. Knowing exactly how any benefits received would be treated for income tax purposes is important to know before a disability claim occurs.
Billy Gwaltney is a disability specialist who works with hundreds of physicians and business professionals across the country. If you would like him to help you maximize your net spendable income during a disability, please call or text us at (704) 707-5788.