About Federal Taxes on Short-Term Disability
When you suffer from a short-term disability, you may be able to receive benefits from a disability insurance policy purchased on your own or through your employer. While these benefits can help you pay the bills while you cannot work, you may also have to deal with the tax liability that comes with them.
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Short-Term Disability
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Short-term disability insurance policies help you get some kind of income while you are disabled. With this type of insurance, you can receive benefits as quickly as two weeks after you become disabled. The benefits can last as long as six months after you suffer the disability. The amount of money that you receive will be based on a percentage of how much you made before you were injured. For example, you can expect to receipt somewhere between 40 and 65 percent of what you made previously.
When it Pays
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When you have a short-term disability policy, it may not pay in every situation. For instance, if you are injured while working on the job, your benefits would not be covered by short-term disability insurance. Instead, you would receive benefits from the worker's compensation policy that your employer had. If you suffer from a permanent disability, you may be able to receive benefits from a long-term disability policy or from Social Security disability coverage.
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Tax Implications
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When you receive benefits from short-term disability insurance, you may or may not have to pay taxes on them. Whether you have to pay taxes on these benefits depends on whether you or your employer paid for the insurance premiums. If your employer pays the insurance premiums for you, you would have to pay taxes on the amount of money that you receive. If you paid for the insurance premiums out of your own pocket, you would not have to pay taxes on the money.
Cafeteria Plans
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Another situation involves paying for your short-term disability insurance policy premiums with money from a cafeteria plan offered through your employer. When you do this, the money that goes into your cafeteria plan is not typically reported as wages. This essentially means that your employer is paying for the premiums of your policy. Because of this, you would have to pay taxes on any short-term disability insurance benefits that you receive from the policy. You would only be able to avoid taxation if you paid taxes on the money first.
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