If premiums are paid on a pre-tax basis, the disability benefit payments you receive are taxable income. This is most common when your employer incurs the full cost of your disability coverage(s).
Managing finances
Group disability insurance is intended to replace a portion of your income when an injury or illness prevents you from receiving a paycheck. Understanding how this impacts your financial obligations, and potential areas of relief, can provide you the peace of mind to focus on recovery and daily life.
The tax factor
Group disability benefits may be considered income by federal and state tax jurisdictions. The amount of benefit you need to report as income is determined by how your premium payments are made to the insurance company.
The annual tax statement you receive for your disability benefits will include the taxable income information you need to report. Here’s some general guidelines to understand how that amount is determined:
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If premiums are paid with post‑tax dollars, your disability benefits are not taxable. This is most common when you elect “voluntary” or “supplemental” disability insurance and pay 100% of the cost through payroll deduction.
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If part of your disability insurance premium is paid by your employer pre-tax, and part of the premium is paid by you on a post-tax basis, only the portion paid by your employer is taxable income. Long-term disability “buy-up” plans may fall into this category.
We recommend you consult with a tax specialist for guidance when reporting income to the government.
Scenario: Joe, 42, works for a regional warehouse where lifting heavy packages is a job requirement. He injured his back while participating in a community pickleball challenge and is unable to work due to his disability for 8 months.
Joe’s disability benefits
- STD coverage: Paid by his employer through Joe’s pre-tax earnings.
- Voluntary LTD coverage: Joe pays 100% of the premium with post-tax dollars through payroll deduction.
Benefit taxation:
- The STD benefits Joe receives are taxable income and filed with the government.
- The LTD benefits Joe receives are not considered taxable income and are not filed with the government.
Scenario: Linda, 28, works for a small daycare provider. She recently received the news that her family will be expanding. She is excited to spend time with her newborn.
Linda’s disability benefits
Voluntary STD coverage: Linda pays 100% of the premium with post-tax dollars through payroll deduction.
Benefit taxation:
The STD benefits Linda receives are not taxable income and not filed with the government.
Managing benefits, deferring debt
If your claim is approved and you or a loved one starts receiving disability payments, take a little time to learn about your benefits and plan for ongoing expenses. Knowing what to consider and exploring options can help you manage this new chapter.
| Waiver of life insurance premium | Check with your employer and your life insurance provider to see if your policy includes a waiver of premium rider. This feature lets you stop paying premiums if you become disabled. Keep in mind that certain rules, like age requirements, may apply. |
| Other employee benefits | Ask your employer what will happen with your other benefits while you’re out on disability, such as medical insurance, paid leave, or retirement plans. You may need to continue paying premiums even if you aren’t receiving a paycheck from your employer. |
| Credit card payments | Even while you’re on disability, your regular bills may still come in. Many credit card companies offer help. Make a list of your cards and balances, then call each company to ask if they offer support programs, such as lower payments, reduced interest, or temporary payment pauses. |
| Home and car loans (secured debt) | Let your lenders know immediately that you’re out on disability. Ask if they offer options that might help during this time, such as refinancing, alternative payment plans, or interest‑only payments. |
| Debt management | Consider contacting nonprofit organizations that help families manage debt, such as the National Foundation for Credit Counseling or Consumer Credit Counseling Foundation. Check that groups are true 501(c)(3) nonprofits, focused on providing honest, repayment‑based guidance, not debt settlement.
The Federal Trade Commission also shares helpful tips in its guide “Coping with Debt.” Be cautious of debt settlement or elimination scams, including no‑cost cash advance offers and “credit repair” clinics. |
| Medications | If your medical policy doesn’t cover prescription costs, seek help through a patient assistance or similar program. Consider options recommended by the Patient Advocate Foundation including:
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| Food and essentials | If you are having trouble affording food or covering basic costs during a period of disability, local food pantries and community groups can be a big help. They often offer free groceries, meals and connections to other support programs. Great places to start:
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Have OneAmerica Financial short- or long-term disability protection through your employer and need to file a claim?
Access our online claims page:
Provided content is for overview and informational purposes only and is not intended as tax, legal, fiduciary, or investment advice • All examples and any individuals shown are hypothetical and were used for explanatory purposes only.