Question

Describe the taxation of disability insurance benefits. Under what circumstances are disability benefits tax-free? When are disability benefits taxable?

Answer 1

Describe the taxation of disability insurance benefits

It provides a regular cash income lost by an employee becuase of an accident or any illness.It is the most negligent form of insurance policy.Generally disability causes more financial losses than death to an individual and his /her family.Huge expenditure will be incurred to treat the patient after disability and the family living expenditure and other expenditure will continue to incur.Disablity insurance will provide a regular income to the individual and family in order to run their life without any financial problem.

Under what circumstances are disability benefits tax-free?

The circumstances under which benefts are tax free can be applicable in the following situations.

• From Employer
• From Workers Compensation and
• From Social Security

Employers in majority of the cases provide disability income protection to the employers through group insurance plan.Most of the employed citizens of US particpate in social security program where the individual benefit is determined with the salary and number of yeras an individual has been covered under this program.Dependents of the participant are also eligible for certain benefits.Workers compnesation is entitled to those who get injured or illeness in the work place during the work time of an employee the benefits are estimated with the persons work history and salary.

When are disability benefits taxable?

For the majority of people, Social Security Disability benefits are not taxable. This is true for people who have income in addition to disability benefits as well as those who do not. (Most of the one-third of disability recipients who do pay taxes on benefits receive SSDI benefits, not SSI. SSI recipients rarely have to pay taxes, because if they had enough income to be taxed, they wouldn't qualify for SSI.

If individual or his spouse have another source of substantial income, it's likely individual SSDI benefits could be taxed by the federal government. If an individual file his taxes as an individual, and his income is more than $25,000 per year but less than $34,000, he would have to pay taxes on about half the value of his benefits. If an individual are married and file jointly, he can have a combined income of up to $32,000 before having to pay taxes on half your benefits.

If the individual are single and he make more than $34,000 or married and make more than $44,000, 85% of his benefits could be taxed.

If the individual disability benefits are subject to taxation because his income is above these limits, the individual disability benefits would be taxed at the marginal tax rate. In other words, he would not pay taxes of 50% or 85% of his benefits, he would probably pay taxes of about 10-15% on 50%-85% of his benefits. Higher income people might pay taxes of 33-35% on 85% of their benefits.