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Taxable long-term disability benefits received prior to minimum retirement age
Old 01-07-2017, 09:57 AM   #1
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Taxable long-term disability benefits received prior to minimum retirement age

Under the IRS definition of earned income, there's a blurb about receiving long-term disability prior to retirement age as earned income.

https://www.irs.gov/credits-deductio.../earned-income

I'm having a hard time finding an IRS publication for a more detailed explanation.

Any advice on where to go looking, or who to talk to?
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Old 01-07-2017, 10:16 AM   #2
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If the employer pays all or part of the long-term disability premiums, then all or part of the payments can be taxed as income. If the beneficiary pays 100% of the premiums then the payouts are tax-free. That's how it was explained to me, a friend is currently on long-term disability but paid all the premiums himself and as such the payments are not treated as income. I think whether it's paid with pre-tax or after tax income also plays a role in determining if the payments are taxable. All his premiums are paid with after-tax money.
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Old 01-07-2017, 10:20 AM   #3
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I had long-term disability when working and we had the choice of paying the tax on the benefit so that payments would be tax-free if paid. If we didn't pay the taxes on the benefit then disability payments were taxable.
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Old 01-07-2017, 10:32 AM   #4
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Originally Posted by rdy2go View Post
I had long-term disability when working and we had the choice of paying the tax on the benefit so that payments would be tax-free if paid. If we didn't pay the taxes on the benefit then disability payments were taxable.
pretty sure that's how it works. it depends on how you pay the premium in the cafeteria (IRC 125) arrangememt
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Old 01-07-2017, 01:10 PM   #5
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Originally Posted by rdy2go View Post
I had long-term disability when working and we had the choice of paying the tax on the benefit so that payments would be tax-free if paid. If we didn't pay the taxes on the benefit then disability payments were taxable.
That's the way I believe it to be also. Think TIRA vs. Roth IRA. "Pay Sam now or pay Sam later."
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