Taxation of Disability Coverage • Individual Policies • Employer-Paid Premiums • Overhead Expense • Keyperson & Buyout
Income taxation rules with respect to disability income insurance generally provide that premiums are not deductible, but benefits are received tax-free. An exception applies to policy premiums paid by an employer on a policy owned by the employee — in such a case, the premiums are generally tax deductible to the employer and non-taxable to the employee, but when received, benefits are taxable to the employee.
Disability Overhead Expense policy premiums are tax deductible to the premium payor. Benefits, however, are taxable. Disability Keyperson and Buyout policy premiums are not deductible to premium payors, but benefits are received tax-free.