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It's natural to think about the long-term implications when starting a new payment plan for anything, including insurance. Wondering if taxes are taken out of short-term disability is a valid concern. The main tax implication your plan has a possibility of facing is a tax on the short-term disability benefit, or cash payout.1 This benefit may also be called short-term disability income.
As a supplemental insurance company, Aflac knows that creating an affordable and sustainable roadmap for your health and wellness is essential. Before diving into the details of whether you pay taxes on short-term disability insurance benefits, let’s discuss how short-term disability insurance works. Then, we’ll cover whether you pay taxes on short-term disability and when it’s taxable.
Let’s say Ashley cooks herself a meal after work and severely burns her hand on a pan. She visits the doctor and discovers that the burn will take a month to heal. She works with her hands, so she will need to take time off work while she recovers.
Thankfully, Ashley purchased a short-term disability plan ahead of time through her employer so she could access benefits. Short-term disability insurance is designed to help you recover from an injury or illness that temporarily puts you out of work.2
At this point, she finds herself wondering if she pays taxes on short-term disability. The answer depends on how she structured her short-term disability premium payments.
A few different instances determine if short-term disability payments are taxable or not:
Don’t wait until it’s too late. Help cover yourself and your family with affordable coverage from Aflac.
Aflac Short-Term Disability Insurance is only offered through employee payroll. If your employer does offer short-term disability, it may be wise to help protect your income from the unexpected. You never know when a debilitating situation will arise. It can be helpful to have a short-term disability plan in place that helps you recover financially and physically while you are unable to work.
If you are an employer, offering short-term disability insurance and clearly communicating tax implications can help employees feel peace of mind. If you find your employees wondering if short-term disability income is taxable, sharing this article can be a helpful resource.
If you’re an employee and your employer does offer short-term disability insurance, it can be helpful to discuss the payment structure, so you’ll know if you’ll get taxed on short-term disability. If you are an employee and your employer doesn’t currently offer short-term disability insurance, it’s never too late to start the conversation.
Explore your short-term disability insurance options.
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1,3 & 4-5 The Balance - Is Short-Term Disability Taxable. Updated Feb 16, 2022. Accessed Apr 5, 2022. https://www.thebalance.com/is-short-term-disability-taxable-5184583.
2 Investopedia - Best Short-Term Disability Insurance of 2022. Updated Dec 18, 2021. Accessed Apr 5, 2022. https://www.investopedia.com/best-short-term-disability-insurance-5072040.
Coverage is underwritten by Aflac. In New York, coverage is underwritten by Aflac New York.
In Idaho, Policy A57600IDR. In New York, Policy NY57600. In Oklahoma, Policies A57600OK, A57600LBOK. In Virginia, Policies A57600VA, A57600LBVA. This is a brief product overview only. Coverage may not be available in all states. Benefits/premium rates may vary based on plan selected. Optional riders are available at an additional cost. The policy has limitations and exclusions that may affect benefits payable. Refer to the policy for complete details, limitations, and exclusions. For costs and complete details of the coverage, please contact your local Aflac agent.
The content herein is provided for general informational purposes and is not provided as tax, legal, health or financial advice for any person or for any specific situation. Employers, employees and other individuals should contact their own advisers about their situations.
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