YOU ASK:

Do you pay taxes on long term disability?

WE ANSWER:

Yes, there are some cases where you will have to pay taxes on your long term disability benefits. This applicable for money received from Social Security, as well as from privately owned disability insurance. The taxing issues related with this may prove to be complicated and you may need the help of a tax consultant to file your income tax returns.

Those who are receiving Social Security disability benefits by way of Supplemental Security Income (SSI) are rarely taxed if the benefits are their only source of income. However, if the person is able to work and earn an income, that income (as well as a portion of his Social Security benefits) is subject to taxes.

Also, if you are receiving income from other sources apart from wages and self-employment income, the money from these sources is also subject to taxes. These sources include half of your Social Security Disability benefits plus other taxable disability insurance benefits, pensions, dividends, interest and any other type of income that is counted as taxable. This is what is commonly referred to as combined income.

Here's a table of just how much your social security disability benefits will be taxed based on your combined income:


Percent of Social Security Disability income to be taxed
Combined income is at $25,000 to $34,000.
Income tax return is filed as an individual.
50%
Combined income is at $34,000 and above.
Income tax return is filed as an individual.
Up to 85%
Combined income tax is at $32,000 to $44,000.
Income tax return is filed jointly with spouse.
50%
Combined income tax is above $44,000.
Income tax return is filed jointly with spouse.
Up to 85%

If you are married but filing separately, your benefits will be taxed the same as if you were filing taxes as an individual.

Now, if you are asking about disability benefits from privately owned insurance, then it depends on how the policy is paid. If the policy is paid by pre-tax dollars, then the benefits are taxable. If the premiums are paid by post-tax dollars, then the benefits are tax-free. Also, if an employer or someone else paid for the policy, then the benefits are also taxable.

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