The Tax Consequences of Long-Term Disability Benefits

Nov 6, 2018 | Blog |

Whether you’re interested in submitting a claim for long-term disability benefits, are currently involved in a long-term disability insurance dispute, or have already secured benefits, chances are that you’ve at least considered the tax consequences of such benefits. In the private disability insurance context, plans can vary quite a bit, and as such, the tax consequences of receiving benefits can rather different from plan-to-plan.

Let’s take a brief look at the basics.

Basics of Long-Term Disability Income Taxation

When you sign up for long-term disability coverage — whether your plan is provided through your employer or was purchased individually — your plan may require (or allow) you to make premium payments with either pre-tax dollars or post-tax dollars. These payments have direct tax consequences later on, in the event that you are disabled and are qualified to receive benefits under the plan.

Given that post-tax premiums involve higher payments, many disability policyholders shy away from such payments, as it is somewhat like doubling down on the “bet” that you will become disabled.

Paid Premiums with Pre-Tax Dollars

If you paid for your long-term disability premium with pre-tax dollars, then the benefits you receive later will be subject to an income tax. It’s worth noting that your long-term disability benefit is already likely to be a percentage of your total earnings per month (before becoming disabled).  Subjecting your benefits to tax will therefore further reduce your overall benefit, and possibly render you incapable of covering your costs — so be wary.

Paid Premiums with Post-Tax Dollars

If you paid for your long-term disability premium with post-tax dollars, then any and all benefits you receive later will avoid income tax altogether. This ensures that you can keep your entire benefits amount and cover losses (which may be substantial).

Negotiated Buyout

If you and your insurer negotiate a buyout of your long-term disability benefits, then you’ll receive the agreed-upon lump sum amount at once. We recommend seeking the advice of an experienced tax professional regarding the taxability of payments beyond regular monthly benefits and potential deductions for attorneys fees and associated expenses.

Request an Appointment With an Experienced Chicago Long Term Disability Attorney

Bryant Legal Group, P.C. is a Chicago-based boutique insurance litigation firm with a focus on representing policyholders who are involved in disputes with their insurance carriers.  Out attorneys have decades of experience advocating on behalf of policyholders in long-term disability disputes and have secured significant case results over the years.

We pride ourselves on our client-oriented legal representation.  We view the attorney-client relationship as a partnership and collaborate closely with clients throughout the dispute resolution process to ensure that we are up-to-date on the necessary facts/records and are strategically aligned.

Interested in speaking to an attorney for guidance on your disability insurance dispute?

Call (312) 561-3010 today to request an appointment with an experienced Chicago long term disability attorney here at Bryant Legal Group, P.C.

Bryant Legal Group - Chicago Healthcare and Disability Attorneys


"Mr Bryant, his partner Jennifer Danish and associate Steve Jackson were efficient, diligent and persistent towards finding a just resolution and favorable outcome for myself and my entire company."

"I used Jennifer Danish for a disability claim. Frustrated that I couldn’t get results myself I found her. She unearthed some issues my doctor did Not notify me of that affect the quality of my life. My end result was positive!"

"Mr. Jackson did an outstanding job in relation to my case. He insured I was. Both prepared as well as informed regarding the hearing. I would highly recommend his skills and personal dedication to the client."

"Though difficult for the obvious reasons, your involvement has made this process infinitely more tolerable. Please know of my sincere appreciation for your efforts. With Very Best Regards,"

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