Wednesday, January 7, 2009
Taxation of Disability Insurance Benefits
Are Disability Insurance Benefits Taxable?
I hear this question from physicians on a weekly basis. The answer is, it depends on whether or not the premiums paid for an individual disability insurance policy are paid with pre-tax or after-tax dollars. If premiums are paid with pre-tax dollars, then the disability benefits would be taxable. Conversely, if premiums are paid with after-tax dollars, then the disability benefits would not be taxed.
For group disability insurance plans offered through your employer as a benefit to you in which the employer pays the entire cost of the disability insurance plan, the disability benefit would be taxable.
For greater details and explanations on how disability benefits are treated , you can visit the IRS web site at http://www.irs.gov/irb/2004-26_IRB/ar06.html