Few want to talk about taxes, butwhen it comes to disability coverage, a bit of tax understandingputs us in place to make sound decisions. I'm not a taxprofessional, but I do know that when it comes to employeebenefits, surprises are rarely good. So let's dig in. Disabilitycoverage is categorized as income and, as such, is subject totaxation. It's important to understand how taxation will impact abenefit in the event of a disability so that employees can beprepared. Savvy employers will have a 'sick pay' plan in place incase an employee or owner experiences a disability which results intime off work. This benefit/income will then be taxed according tothe plan put in place. Paycheck insurance or disability insuranceis any amount paid to an employee because of an employee's absencefrom work due to an injury, sickness or a disability. Disabilitypay can come from the employer or a third-party, such as aninsurance plan. Sick pay benefits paid by an employer or thirdparty are considered the gross income of an employee if theemployer pays part or all the premium for coverage. As such, it issubject to taxation.

What is taxed?

Either the premium or the benefit is taxed. If the employer paysthe entire premium, then the employee pays all taxes on thebenefit. If the employer pays any part of the premium and theemployee pays the remaining balance with post-tax dollars, then thebenefit received is taxed in the same proportion. If the employeepays the whole premium with post tax dollars, then the benefitreceived is not taxed.

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