THE TAX IMPLICATIONS OF DISABILITY INCOME BENEFITS

Many Americans receive private disability income. How is it 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 just as ordinary salary is. But if you paid for the policy, the payments received under it aren’t taxable. Frequently, the payments aren’t made by an employer but by an insurance company under a policy providing disability coverage. In other cases, they’re made under an arrangement similar to accident or health insurance. Again, the tax treatment depends on who paid for the insurance coverage.