Annapolis, MD asked in Tax Law for Maryland

Q: Is temporary disability taxable? I pay the disability premium through my employer.

I received a notice of deficiency regarding the temporary disability I did not report on my taxes. When researching the topic I found that if I pay the premium, then it is not taxable. I'm trying to find out if this is true so I can respond to notice.

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1 Lawyer Answer
James L. Arrasmith
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  • Tax Law Lawyer
  • Sacramento, CA

A: Based on the information you provided, it seems that you received temporary disability benefits through a plan where you paid the premiums. In this case, the benefits you received are generally not taxable. Here's a more detailed explanation:

1. If you pay the entire cost of a disability insurance plan with after-tax dollars, the benefits you receive under the policy are not taxable.

2. However, if your employer pays for the disability insurance premium or if the premiums are paid with pre-tax dollars (such as through a cafeteria plan), then the benefits you receive would be taxable.

To respond to the notice of deficiency, you should gather documentation showing that you paid the disability insurance premiums with after-tax dollars. This may include pay stubs, receipts, or other records from your employer showing that the premiums were deducted from your post-tax income.

You can then write a response to the IRS explaining your situation and providing the necessary documentation to support your claim that the temporary disability benefits are not taxable in your case.

If you need further assistance, consider consulting a tax professional or contacting the IRS directly for guidance on your specific situation.

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