Social Security Disability - Up to 85% of SSDI benefits can be taxable, depending on the recipient's level of "provisional income." But most folks pay no taxes on the benefits because they don't have much other income. Private Disability Policy - If you directly purchase a disability policy from an insurance company and have an eligible claim, the benefits will be non-taxable. That's because you paid the premiums with already-taxed dollars. Group Disability Policy Through Work - If you collect on an employer-provided group disability policy, the benefits will be taxable. On the other hand, if it's a group policy, you can choose to participate or not, and your participation is funded through your own after-tax payroll deduction, then the benefits will be non-taxable.
This is an interesting question that financial professionals deal with on an ongoing basis. The key to whether disability is taxable has to do with "who paid the premium" for the disability benefit. In other words, if the benefit was paid entirely by your employer through some kind of group insurance policy, the receipt of disability benefits is in fact taxable. If on the other hand, you paid the premium yourself with after-tax dollars, then the disability income is 100% tax free to you. Hope this helps. Good luck
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.
WalletHub members have a wealth of knowledge to share, and we encourage everyone to do so while respecting our content guidelines. Please keep in mind that editorial and user-generated content on this page is not reviewed or otherwise endorsed by any financial institution. In addition, it is not a financial institution’s responsibility to ensure all posts and questions are answered.
Ad Disclosure: Certain offers that appear on this site originate from paying advertisers, and this will be noted on an offer’s details page using the designation "Sponsored", where applicable. Advertising may impact how and where products appear on this site (including, for example, the order in which they appear). At WalletHub we try to present a wide array of offers, but our offers do not represent all financial services companies or products.