Disability insurance can replace your income if you’re injured or sick and can’t work, but it isn’t taxed exactly like your normal income.
You’ll pay taxes on your disability benefits if you pay your premiums with pre-tax dollars (like if you get group disability insurance through your employer and the premiums are deducted from your paycheck), but not if you pay for coverage with money that’s already been taxed (like if you go out and buy your own long-term disability insurance policy directly from an insurance company).
Is the money you get from disability insurance taxable?
Income from a disability insurance claim is sometimes taxable, but it depends on how you got the disability coverage in the first place.
If you get disability insurance coverage through work and your employer pays for part or all of your premiums, you’ll owe taxes on any benefits that policy pays out if you wind up filing a claim. This is also the case if you pay for the policy with pre-tax dollars taken right out of your paycheck.
The payments, or benefits, from a personal disability insurance policy aren’t taxable since the money you used to buy the policy was already taxed as normal earnings. This is true whether you receive disability benefits over many years or all at once.
Many people get short-term insurance through work and buy long-term coverage for themselves, so it can seem like, as a rule, short-term disability benefits are taxable and long-term benefits aren’t. In reality, whether the policy is short-term or long-term doesn’t affect whether you have to pay taxes on your disability benefits, what matters is how you pay for the policy.
What about Social Security benefits?
You may have to pay taxes on disability benefits from Social Security, but only if you make over a certain amount of money.
Each person has what’s called a “base amount,” which is different depending on how you file your taxes. If your income (including your spouse’s if you file jointly) plus one-half of your SSDI benefits are higher than your base amount, your Social Security benefits are taxable. [1]
Filing status | Base amount |
|---|---|
Single, head of household, qualifying surviving spouse | $25,000 |
Married and filing jointly | $32,000 |
Married and filing separately and lived away from your spouse for the whole year | $25,000 |
Married and filing separately and lived with your spouse for the whole year | $0 |
Source: IRS table for base income amounts by filing status
How to file your taxes on your disability benefits
If you got taxable benefits from your disability insurance policy, you need to include the amount of benefits you received paid as part of your salary or wages when you file. If you’re not sure which forms you need to file your taxes correctly, speak with a tax professional.
As with other types of income, you’ll receive a refund if the amount you paid in taxes (or the amount of income you chose to withhold for taxes) is higher than what you actually owe.
