Short-term disability benefits can also be taxed. The federal tax rule is the same for short-term and long-term disability benefits: if the purchaser pays the premiums with taxed funds, you do not pay taxes on the benefits. The benefits can be taxed if the employer or employee pays the premiums with untaxed funds (such as an employer’s benefits or an employee’s pre-tax earnings). Short-term disability benefits can also be partially taxed and partially not taxed in cases where the purchaser paid the premiums with a combination of taxed and untaxed funds.