Do I Have To Pay Taxes On My ERISA Disability Benefits?
My name is Brandon Osterbind and I’m an injury and disability attorney here in Central Virginia. I help people whose long-term disability claims have been denied. And I get this question all the time. Do I have to pay taxes on the long-term and ERISA disability benefits that I receive from the insurance company?
The answer is usually yes
A lot of times, the answer is yes. I’ll tell you why. Most of the time, with most of these policies, it’s a large employer who is buying an insurance policy from an insurance company. And the employee is not paying for the policy. The employer is paying for the policy as an employment benefit. It is essentially an additional form of compensation.
You’re not typically taxed on the premium that the employer pays for the long-term disability policy. It’s a business expense. It gets deducted by your employer. And it’s not coming out of your paycheck.
The federal government looks at that as an employee benefit that you didn’t pay for but that you’re getting in exchange for your work. It’s essentially income for you when you get those benefits.
A possible exception
The exception might be that, perhaps, you pay for the long-term disability policy, probably through a payroll deduction. And if that is true, perhaps there’s a different result.
I always tell people, “Make sure that you consult your CPA with respect to the taxability of any benefits that you receive from an insurance company, particularly long-term disability benefits.” It is that important to make sure that you know in your specific situation whether this is included as taxable income or not.
You’ll typically get a 1099
And typically, the insurance company that awards you long-term disability benefits will tell you that your benefits are taxable. And they will send you a document, a 1099 or something to that effect, that says, “In the year 2020, you’ve received x number of dollars as a result of this, and this is taxable income.”
You’ll know when you go to do your taxes that you are responsible for providing that information to the IRS and paying taxes on that dollar number. I hope this video has been helpful and that you learned something from it.
If we can be of any assistance with respect to the administration of your benefits and your claims that have been approved and if we can help you stay on claim, we want to help. Give us a call. Send us an email. Ask us any questions that you might have.
And if you have questions that we haven’t thought of before, we can do some research and get you an answer. Perhaps we’ll even shoot another video so that we can share the information with the rest of the world.