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Is Short-Term Disability Taxable?

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 discuss when short-term disability income may be taxable.

How Does Short-Term Disability Work?

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.

When is Short-Term Disability Taxable?

A few different instances determine if short-term disability payments are taxable or not:

  • If you pay for the premiums yourself with after-tax dollars, your short-term disability benefits are not taxable.1 In some cases, this payment may automatically be deducted from your paycheck.
  • If your employer pays 100% of the premiums, all your short-term disability income is taxable.1
  • If you decide to split premium payments with your employer, there are two possible outcomes. If the premiums are automatically deducted from your paycheck, you may have to pay taxes on your portion of the short-term disability benefits. However, if you pay your share of the premiums with after-tax dollars, half of it would be taxed.1
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Should I Get Aflac Short-Term Disability Insurance?

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.

Still have questions?

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