Payments and Benefits
Some disability payments are subject to income tax, while others are not. Here are some common situations:
- Employer-paid disability benefits: If you receive disability income from an employer while you are unable to work, that money is usually taxable just like regular wages.
- Disability insurance payments: If you receive benefits from a disability insurance policy, your tax liability depends on who paid the premiums for the policy. If your employer paid the premiums, then the benefits are taxable. If you paid the premiums using after-tax money, your benefits are not taxable.
- Social Security disability: Social Security disability benefits may or may not be taxable depending on how much other income you (and your spouse, if you’re married) may have. In general, though, if Social Security disability is your only source of income, your benefits aren’t taxable. Internal Revenue Service Publication 915 provides further details on determining whether your benefits are taxable.