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Taxation of Long-Term Disability Benefits. In general, if the premiums for your LTD policy were paid for with before-tax dollars (as is almost always the case with an employer-provided group plan), your LTD benefits are taxed as ordinary income to you.
by FreeAdvice staff. In some situations disability income may be subject to income tax. Whether or not disability income is taxed will depend on who is paying for the disability insurance premiums and how much income you are receiving from your disability benefits in combination with other sources.y FreeAdvice staff. In some situations disability income may be subject to income tax. Whether or not disability income is taxed will depend on who is paying for the disability insurance premiums and how much income you are receiving from your disability benefits in combination with other sources.