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Is Long-Term Disability Income Taxable?
When serious illnesses, physical injuries, or mental conditions prevent an employee from performing the duties of their job for a lengthy period of time, long-term disability benefits may provide them with much-needed financial assistance while they’re unable to work.
Long-term disability benefits may be taxable. If your employer pays even a portion of the premiums for your group insurance plan, and a medical condition requires you to collect long-term disability benefits, you may be required to report these benefits as income on your taxes.
Taxation of Long-Term Disability Benefits Depends on Who Pays the Premiums
Whether or not you are required to pay taxes on the long-term disability benefits you receive depends on who has been paying the premiums for your insurance policy.
Your insurance policy may be part of a group plan for which your employer pays 100% of the premiums. In this case, you will not pay taxes on the costs of those premiums. However, if a serious medical condition prohibits you from working and you are required to claim long-term disability benefits from your insurance provider, you will then be required to pay taxes on the money you receive, and report it in your tax return.
If you pay into an individual policy, or you pay 100% of the premiums in your group insurance plan, you will be required to pay tax on your monthly premium payments. In these cases, should the day come when you need to claim those benefits, the compensation you receive will not be taxable, and you will not have to report it.
If you and your employer each pay a portion of your long-term disability premiums, you may be required to pay taxes on the portion of benefits for which your employer paid premiums.
Typically, your insurance company will inform you of who paid the premiums for your policy. If you owe any taxes on the benefits you receive, the insurer will usually deduct them from your monthly payments.
Reporting Canada Pension Plan Disability Benefits
If you are under the age of 65 and have sustained a severe, prolonged disability preventing you from returning to work, you may be eligible for Canada Pension Plan (CPP) Disability Benefits, provided you have been paying for this type of coverage. These payments must be reported on your taxes, as well.
Typically, the CPP deducts any taxes you might owe before issuing long-term disability benefits payments. CPP may also send you a detailed annual breakdown of the benefits you received and the taxes you’ve already paid on them in the form of a T4A(P) statement. Information outlined in this statement can be referenced when filing your annual tax return.
Contact Preszler Injury Lawyers Today
If you have any questions about your long-term disability benefits claim, Preszler Injury Lawyers may be able to provide you with useful assistance or advice. To discuss the details of your claim, call Preszler Injury Lawyers today at 1-800-JUSTICE for a free, initial case review.
