If you have been receiving disability benefits, you might be wondering if your long-term disability is taxable or not. In this article, we will answer that question for you. After reading, you should be able to determine if you have to pay taxes on your long-term disability income.
For more information about long-term disability benefits, check out our 2021 Guide to Long-Term Disability.
Is long-term disability taxable? Know with one easy trick
As you probably know, long-term disability benefits can come from various sources — insurance companies, government agencies, and employers, to name a few. In this article, we are talking about those paid through an insurance policy.
The answer to the tax question is pretty easy: It depends on who is paying the premium for the benefits.
There are two possible scenarios. Either your employer pays the premium for the benefits, paying all or part of it, or you pay the premium.
If your employer pays the premium, then your benefits are taxable as income. You will receive a T4A slip to send in with your taxes. You receive the gross benefit amount. In this case, they usually don’t take money off for taxes, so you’ll probably have to pay some money back. You can double-check this because sometimes they will deduct taxes. But, in most cases, you can assume that they haven’t deducted anything.
If you pay the full premium (and this does need to be 100%), then your long-term disability benefit will not be taxable as income. In this case, you keep whatever money you receive. No tax slips are issued for the money you get.
So, it’s just that easy to figure out if long-term disability is taxable. All you need to do is figure out who pays the premium for your disability benefits. That should tell you if you have to pay income tax on them or not.