November 8, 2020

2020 – 11/03 – Disability income: How is it taxed?

You may wonder if and how disability income is taxed. It depends on who paid for the benefit. If the income is paid directly to you by an employer, it’s taxable to you as ordinary salary would be. (Taxable benefits are also subject to federal tax withholding, although they may not be subject to Social Security tax.) Sometimes, payments aren’t made by an employer but by an insurance company under a policy providing disability coverage or other insurance. In this case, the tax treatment depends on who paid for the coverage. If an employer paid, the income is taxed to you just as if paid directly to you by the employer. But if it’s a policy you paid for, the payments you receive aren’t taxable.