Is A Disability Insurance Payment Taxable? 
Disability insurance you purchase without the financial contribution of your employer towards the premium expense of individual disability insurance will generally be free of income taxation . This tax treatment results from the circumstances . First , the money used to pay premiums are `` after-tax '' dollars . In other words , you already paid tax on the money used to pay the disability premiums when it was earned as income . Second , neither an employer or business will take a deduction on their tax returns for the payments made to provide the insurance to you . These two things make the income earned under a personal , individual disability policy free of income tax on the benefits . As a general rule , if a business pays for the a portion of the premium the benefit is probably taxable to some extent even when you contribute . The amount of the benefit that is taxable will be determined by the ratio of the total premium paid , compared against the premium amounts paid by the business and the individual . If the benefit is payable to a business the income is probably taxable . Corporate -LRB- or business -RRB- owned disability insurance can be designed to provide income or overhead expense protection . Overhead expense protection permits the deduction of cost on tax forms but the income is taxable . There is also the possibility that disability income coverage is used in a buy-sell agreement . When the benefit is paid to a business , as a general rule , the benefit is taxable . As in most instances , this general answer can not begin to address the variety of complicating circumstances so specific answers are best for specific situations . 