Disability Insurance Taxes

I received a W2 form for disability money received from my employer while I was disabled. I paid additional money, through payroll deduction, to carry this disability insurance. Is the money I received taxable? I live in the state of Pennsylvania.

Answer: Here's the general rule of thumb: if you paid for your disability insurance with "before tax" dollars, the benefits are taxable. In most cases, this would apply if your insurance was paid by your employer, rather than you. However, if you paid for your disability insurance with "after tax" dollars, the benefits are not taxable. This usually means that you paid it, whether by payroll deduction or through a private policy.

Without looking at your pay stub directly, I can't be sure which situation applies to you.

Check with your employer to find out if it was before tax or after tax dollars that paid for your disability premiums. I suspect that if you got a W2 form, you may owe tax. Also, you might speak with a tax professional in Pennsylvania and discuss the details of your situation with that person, although I'm not aware of any special legislation that would affect you there. But better safe than sorry: you don't want to end up in hot water with the IRS later!

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