Consider the tax consequences of disability plans

You can receive some benefits tax-free, but you have to know the rules.

A little-known tax rule could allow you to receive some benefits from a short or long-term disability plan tax free.

In the Tax Guide, it states that if you receive benefits from a wage-loss replacement plan, you can deduct any contributions you personally made to the plan after 1967 from the amount you must show as income.

There is a potentially even better tax break, however. If you pay the full STD or LTD premium yourself (no employer contribution) the plan becomes classified as an “employee-pay-all plan”. In this situation, all benefits are received tax-free.

If you want more information, consult IT Bulletin #428 which is available here.