Is your group disability benefit taxable?

Q. Are disability benefits payable under a group policy of disability insurance sponsored by an employer taxable?

A. It depends.  As of this posting in January 2013,the Internal Revenue Service provides these benefits will be taxed in the following manner:

Group disability benefits are fully taxable if:

  1. The employer pays the full cost of the premium for the disability insurance; or
  2. The employee pays for the full cost of the premium with pre-tax dollars; or
  3. The employer and the employee share the cost of the premium and the employee pays his or her share with pre-tax dollars.

Group disability benefits are not taxable if the employee pays the full cost of the premium with post-tax dollars.

Group disability benefits are partially taxable if the employer and employee share the cost of the premium and the employee pays his or her share with post-tax dollars.  In this case, the potion paid by the employer is taxable but the portion paid by the employee is not.

Note:  This information is not intended to constitute tax advice and is provided, rather, as a general guideline for understanding group disability benefits.  Each individual’s situation may vary.  To determine whether your disability benefit is taxable, consultation with a certified public accountant is recommended.    Different rules, which are not addressed here, may apply to disability benefits which are not obtained under an employer-sponsored group disability plan.

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