Disability insurance is a form of life insurance that helps to provide for your family if you become disabled and can’t work. It’s a good idea to have some disability insurance coverage in place since it can protect both you and your family against the loss of income due to illness or injury.
If you’ve decided to purchase disability insurance, it’s important to know whether any premiums paid will be tax deductible as well as how much of your premiums might be deductible. In this guide, we’ll discuss who qualifies for tax-deductible disability insurance payments, how much is deductible based on IRS guidelines and other factors that impact your ability to deduct these payments on your taxes.
Are You Self-Employed?
If you’re self-employed, disability insurance premiums are deductible in the same way as other business expenses. You can also deduct long-term care premiums and health insurance costs if your business is a sole proprietorship or an LLC taxed as a sole proprietorship.
Consider an Employer-Provided/Sponsor Plan (Group Health Insurance)
If your employer provides disability insurance as part of your group health insurance plan, it’s not tax deductible. If you’re lucky enough to have this benefit, be aware that it can be used to supplement other sources of income while you’re disabled and waiting for Social Security benefits.
Do You Have a Disability?
Disability insurance is insurance that pays benefits if you are unable to work due to a disability. If a person becomes disabled, they will not be able to earn income and therefore cannot pay their bills.
Disability insurance can be a good way to protect your income. If your employer offers disability insurance as part of its employee benefits package, it may be wise to enroll in it. This is especially true if you know that your occupation involves physical labor or high-risk activities such as construction work or being an athlete.
If You Itemize Your Deductions…
If you itemize your deductions, you may be able to deduct any premiums paid for disability insurance on your taxes.
Here’s how it works:
You’ll usually have to pay tax on the portion of your income that falls into a certain bracket. But if you itemize deductions, that amount will go down, which lowers the amount of tax you owe. For example, if your gross income is $100k, and after deducting charitable donations, mortgage interest payments and state taxes paid (among other things), the government considers only $30k as taxable income—meaning they’ll take only 30% of whatever amount remains after all these deductions are subtracted from 100%.
For reference, in 2018, the standard deduction was $12k for single filers and $24k for married couples filing jointly.
In summary, if you are self-employed or have an employer-provided/sponsored plan, you can deduct the cost of disability insurance from your taxes. If you don’t itemize deductions and still pay premiums, it is unlikely that they will be tax deductible.
Care Financial is here to answer any questions you and your loved ones have about disability insurance Contact us today to get started at (251) 633-7122 today.