Is Long Term Disability Insurance Taxed? 
If you dont deduct your disability insurance premium as a business expense , your disability benefits are tax free . But if you do deduct your disability insurance premium , then your disability benefits are taxable at ordinary income tax rates . The advantage of the deduction is the disability insurance company will cover up to 80 % of your compensation , compared to 60 % if you dont deduct it . You need to determine you effective tax bracket rate to analyze which is better for your situation . 