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Tax Law (Questions About Taxes)/Tax Status of Disability Benefits


QUESTION: I am 50 years old and worked for a company about 10 years, until last year when they outsourced my job and terminated my employment. Shortly thereafter I went into a severely depressed state of mind and am still receiving treatment for this condition. As a result, I am now receiving long term disability benefits from my former employer's insurance company. While I was working, I contributed 30% of the total medical insurance premiums, which included disability insurance, and the company paid 70%. The medical insurance premiums I paid were deducted from my monthly pay checks. I am now on COBRA and pay 100% of the premiums. Based on this information, I would like to know if the disability benefits I'm receiving is considered taxable income by the IRS. If so, can I exclude 30% of the total, since I paid 30% of the premiums while I was working? Thank you and I look forward to your reply.

ANSWER: Frank:

I can not give you a precise answer to your individual situation because I am not privy to your personal information.  However, I will give you a general statement regarding disability received from a 3rd party insurance company.  Usually the first six months are excluded from being reported as income there after it is reported and tax is paid on it.  No exclusion is made based on the premiums you paid.

Hopefully this will assist you.


[an error occurred while processing this directive]---------- FOLLOW-UP ----------

Thanks for your prompt reply. This is the first I'm hearing about the first 6 months of disability benefits being exempt from federal taxes. Is this found in one of the IRS publications? I thought, but could not confirm, that if a person paid all or a portion of the premium with after-tax funds, the percentage paid by the employee would be tax exempt and the percentage paid by the employer would be taxable to the employee.


It is but at this moment I can not locate which pamphlet it is.  Usually when taxed an un taxed money is involved in any situation with the IRS the un taxed money used is reported first before any after taxed money is used.  When it come to disability if you use $30.00 of after taxed money an that bought you $750.00 of income you could only expect to deduct $30.00 from the $750.00 not the percentage of the $750.00 that the $30.00 bought.  There is really no easy way to make a deduction from the income other than your standard deduction not an additional deduction.  As always it one or the other not both.


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John L. Tidwell


Unemployment tax law both state and federal; determination of employer employee relationship; the usual 20 commonlaw factors for making that determination; and what makes me a liable employer.


Over 20 years of field audit experience with a state agency



Degree in Accounting from Falls Business College

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