If you think that paying for your employee’s disability premiums is always
a good thing, think again. If you provide your employees disability as a
nontaxable fringe benefit, payments they receive upon their disability will
be, in most cases, FULLY taxable to them!
Payments received due to disability are not taxable if:
● Your employees paid the premiums on the policy with after-tax funds, OR,
● You paid the premiums but deducted the amount from their income.
The cost of disability insurance – even over a good amount of time - can be far
less than the tax due on the income received under the policy. Like all insurance,
it all depends on whether you actually collect under the policy.
