Disability insurance money can be taxable, depending on the circumstances. In general, if you pay the premiums for your disability insurance policy with after-tax dollars, then any benefits you receive from the policy are typically not taxable. This means that you won't have to report the disability insurance payments as income on your federal tax return. However, if your employer pays the premiums for your disability insurance policy and doesn't include the cost in your taxable income, then any benefits you receive would generally be taxable. It's important to note that this applies to individual disability insurance policies and not to employer-sponsored group disability insurance plans.
Additionally, if you receive disability insurance benefits through a government program, such as Social Security Disability Insurance (SSDI) or workers' compensation, the taxability of the benefits may vary. For example, SSDI benefits may be subject to federal income tax if your total income exceeds a certain threshold. On the other hand, workers' compensation benefits are generally not taxable at the federal level.
To determine the taxability of your disability insurance benefits, it's recommended to consult with a tax professional or refer to the IRS guidelines. They can provide personalized advice based on your specific situation and help you understand the tax implications of your disability insurance payments. It's always a good idea to keep records of your disability insurance payments and consult with a tax professional to ensure compliance with tax laws and regulations.