How Short Term Disability Could Impact Your Taxes – Easy Work Home
Northwestern Mutual: Many people don’t realize what tax implications can come from going on short term disability. Are insurance premiums tax-deductible? Is short term disability taxable? There are many questions surrounding the issue, and the only answer to all of them is it depends on what kind of coverage you have.
It’s common to have a mix of pre- and post-tax disability coverage, and each policy comes with different tax impacts. This guide will help simplify some of the major concepts so that you can make informed decisions when choosing your coverage.
Post-tax policies are usually purchased by individuals on their own, often because they don’t have a short term disability policy through their employer or they want to purchase additional coverage. Premiums tend to be more expensive with these plans, but benefits can also be higher.
According to the IRS1, “If the amounts are taxable, you can submit a Form W-4S, Request for Federal Income Tax Withholding From Sick Pay to the insurance company or make estimated tax payments by filing Form 1040-ES, Estimated Tax for Individuals.”
The amount of taxes you could owe on the earnings will vary from person to person depending on a myriad of factors, including your adjusted gross income, how much you’ve already paid in taxes (or had withheld from regular paychecks) throughout the year, and other factors. It’s best to consult a professional tax advisor or contact the IRS directly to fully understand your specific tax obligation.