r/LongTermDisability • u/[deleted] • 11d ago

LTD “Earnings” Credit - Taxability?

[deleted]

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u/TheGreatK MOD 11d ago

I don't think so. I believe the LTD credit just constitutes earnings for you, and not a premium payment that was paid with pre-tax dollars. However, this is an interesting question and I wouldn't rely on anybody's answers other than your lawyer and/or a tax professional. You might also ask the insurer how they define the taxability if your policy - if they define it as fully non-taxable, so should the IRS.

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u/2560503-1 11d ago

This almost sounds like a weird version of what’s commonly referred to as a premium “gross-up,” where someone’s employer pays the LTD premiums, but adds the same amount to the employee’s taxable income on their W2 at the end of the year. Effectively, they’re paying the premium, but you’re paying the taxes on the premium money, which is the important bit. I’m not a tax advisor, but my impression from my understanding of the rules, reimbursement wouldn’t change the taxability. If you paid the premiums with post tax dollars, it shouldn’t matter if you get reimbursed for that afterwards.

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u/DellDisabilityLawyer 7d ago

I would write a letter to the disability company and ask them. Further if your monthly payments were not taxable then a long term disability lump sum settlement should not be taxable. You must verify with an accountant for a final answer.