Disability Proceeds from Privately Paid Policy

[Yardley CPA]

Client calls after her return has been efiled. She says, "I forgot to tell you, my husband received disability insurance proceeds from a policy that he himself paid for...it amounted to $3,700 a month."

I do not run across this everyday, and on the surface I don't think it is taxable, but figured I would seek opinions...would the monthly proceeds be taxable?

She claims that she did not receive a 1099 or any type of tax form from the Insurance Company paying the income.

[indyscott]

Generally Disability insurance benefits are not taxable.

Premiums are paid for with aftertax dollars, and, in the aggregate, the dollars are just kind of shifted around among the plan participants, and the insurance company administering it. My premium dollars pay your benefits, kind of a thing.

The confusion arises from the fact that the benefits are replacing what would otherwise be the regular taxable income earned by the worker.

[schirallicpa]

I had one of these this year. If the company paid the premiums, its taxable. If taxpayer paid the premiums, it's not taxable (unless it came out pre-tax, somehow.) In the case I had, it was partial, the t/p was 1099'd for the whole amount, and I backed off the portion that he had paid (half) on line 21.

I know I found reference to it in a publication. May have been 17.

[joelgilb]

Generally Disability insurance benefits are not taxable.

Premiums are paid for with aftertax dollars, and, in the aggregate, the dollars are just kind of shifted around among the plan participants, and the insurance company administering it. My premium dollars pay your benefits, kind of a thing.

The confusion arises from the fact that the benefits are replacing what would otherwise be the regular taxable income earned by the worker.

Some company paid plans may be taxable, but usually if the taxpayer/employee pays for it themselves it is not.

Joel

[Yardley CPA]

Thanks for all the replies!

[Bart]

I had one of these this year. If the company paid the premiums, its taxable. I know I found reference to it in a publication. May have been 17.

I thought if the company did not deduct the premiums the payouts were not taxable.