Chapter 7
Taxation of Disability Coverage


The important points addressed in this lesson are:

The general rule concerning the tax treatment of disability income insurance premiums and benefits is that if the premium is non-deductible the benefits are tax-free; if the premium is deductible, the benefits are taxable

Disability income insurance premiums paid by an employer on an employee-owned policy are generally tax deductible and non-taxable to employees

Disability income insurance premiums paid by an employer on a policy owned by the employer are not tax deductible, but benefits are received tax free

Disability income insurance premiums paid by an employer on a policy owned by the sole proprietor, partner or more-than-2% S corporation owner are not deductible by the business

Disability income insurance premiums paid by a regular corporation on a policy owned by an employee-stockholder are tax deductible, regardless of the extent of the employee's corporate ownership

Disability Overhead Expense policy premiums are tax deductible to the premium payor, regardless of the type of organization

Although Disability Overhead Expense benefits are taxable when received, their reimbursement of deductible expenses results in a tax wash

Disability buyout and keyperson policy premiums are not deductible to the premium payor

Disability buyout and keyperson benefits are tax free when received





Tax Status of Disability Income Policies
Tax Status of Business-related Disability Coverage
Chapter 7 Review