Are Short-Term Disability Benefits Taxable?


Quick Answer

Some short-term disability benefits are taxable. Short-term disability payments from private plans are subject to federal income tax when they are paid for with pre-tax dollars, but not when they are purchased with after-tax dollars. Social Security disability payments are taxable when the recipient meets certain income requirements.

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Full Answer

Tax liability for Social Security disability payments is calculated using an individual's provisional income. Provisional income is adjusted gross income plus half of the annual disability income. An individual filing as a single person or head of household is exempt from tax liability for Social Security disability payments when his provisional incomes is lower than $25,000.

Married couples filing jointly must have provisional incomes lower than $32,000 to avoid tax liability. Married couples filing separately have full tax liability for all Social Security disability payments, regardless of income level, unless they do not live together. Married couples who do not live together and who file separately use the single income threshold of $25,000.

If an employee pays the premiums through a cafeteria plan and did not include the amount of the premium as taxable income, the premiums are then considered to have been paid by the employer, explains TurboTax. Therefore the disability benefits are fully taxable. For the five states that sponsor state disability plans that are funded by payroll taxes, whether or not the benefits are taxed is determined by the state, according to Zacks.

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