Long-term disability payments are usually taxable, but it depends on who paid the premiums
Whether you report long-term disability (LTD) income on your tax return depends entirely on who paid the premiums for your policy. If your employer paid the premiums, the payments you receive are taxable income and you must report them. If you paid the premiums yourself with after-tax dollars, the payments are not taxable and you do not report them. If you and your employer split the cost, only the portion tied to your employer's contribution is taxable.
Your insurance company will send you a 1099-R form by January 31 each year if your LTD payments are taxable. This form shows the gross amount you received and how much, if any, was withheld for taxes. You report this on your federal tax return using Form 1040. If you did not receive a 1099-R, that typically means your payments are not taxable — but you should still verify this with your insurance company or employer before filing.
Key Takeaways
- LTD payments are taxable if your employer paid the premiums; they are not taxable if you paid the premiums yourself with after-tax money.
- Your insurance company sends a 1099-R form only for taxable LTD payments, arriving by January 31.
- You report taxable LTD income on Form 1040 using the amount shown on the 1099-R.
- If your employer paid part of the premium and you paid part, only the employer-paid portion of your benefits is taxable.
- LTD payments do not count as earned income, so they do not affect your may be able to access for SSDI or other work-based programs.
How to find out who paid your premiums
Start by checking your employee benefits documents from when you enrolled in the plan. Your employer's benefits summary or plan document will state whether the premium was paid by the employer, by you, or split between both. If you no longer have those documents, contact your employer's human resources or benefits department — they can tell you exactly how your policy was funded.
If you are no longer employed by that company, call the insurance company directly. The phone number is on your 1099-R form or your policy documents. Tell them you need to know whether your long-term disability premiums were paid by your employer or by you. They will have this information in their records and can confirm it in one call.
What happens if your employer withheld taxes from your LTD payments
If your LTD payments were taxable and your insurance company withheld federal income tax, that amount appears on your 1099-R in Box 4 (federal income tax withheld). When you file your tax return, you report the gross amount from Box 1 as income, and the withheld amount counts as a payment toward your total tax liability for the year.
Depending on your other income and deductions, the amount withheld might be more than you owe, less than you owe, or exactly right. If more was withheld than you owe, you receive a refund. If less was withheld, you owe the difference when you file. This is the same as how withholding works for wages or other income sources.
LTD payments and SSDI: what you need to know
Long-term disability payments do not affect your Social Security Disability Insurance (SSDI) benefits, whether or not they are taxable. SSDI looks at whether you are working and earning substantial income — not at whether you are receiving disability payments from a private insurance policy. You can receive both LTD and SSDI at the same time without one reducing the other.
However, if you are receiving LTD and considering whether to explore for SSDI, be aware that SSDI has its own medical review process. The fact that you may have access to for LTD does not automatically mean you will be approved for SSDI, because the two programs use different standards for disability. You would need to meet SSDI's definition of disability and pass their medical evaluation.
Reporting LTD on your tax return step by step
If you received a 1099-R for taxable LTD payments, here is what to do when you file:
- Gather your 1099-R form and any other income documents (W-2s, 1099 forms, etc.).
- On Form 1040, report the gross LTD amount from Box 1 of your 1099-R on the line for "other income" or "taxable disability payments" — the exact line depends on your tax software or form version.
- If federal tax was withheld (shown in Box 4), that amount goes on your withholding line when you calculate your total tax.
- Complete the rest of your return as usual, including any deductions or credits you are may have access to to.
- If you are unsure where to report the income, your tax software will prompt you, or you can ask a tax professional.
If you did not receive a 1099-R and your LTD payments were not taxable, you do not report them on your tax return at all. Do not include them as income.
What if you received LTD payments but no 1099-R
If your LTD payments were supposed to be taxable but you did not receive a 1099-R by February 15, contact your insurance company when ready. Ask them to send you a corrected 1099-R or to confirm in writing that no form is needed because your payments are not taxable. Keep that written confirmation with your tax records.
If you already filed your return without reporting the income and later receive a 1099-R, you will need to file an amended return (Form 1040-X) to add the income. The IRS may also contact you if they receive a 1099-R in your name that does not match your filed return. It is better to correct this proactively than to wait.
LTD and state taxes
Most states follow the same rule as the federal government: if your LTD is taxable for federal purposes, it is taxable for state purposes too. However, a few states have different rules. Some states do not tax disability income at all, regardless of who paid the premiums. Others tax it only under certain conditions.
Check your state's tax website or ask your tax preparer whether your state taxes long-term disability payments. If you live in a state that does not tax disability income, you may not owe state tax on your LTD even if you owe federal tax. Your 1099-R will show federal withholding, but you may be may have access to to a refund of state tax if any was withheld.
Frequently Asked Questions
Can I deduct my LTD premiums on my taxes?
If you paid the premiums yourself, you cannot deduct them as a personal expense on your federal tax return. However, if you are self-employed and paid premiums for a disability policy covering your business income, you may be able to deduct them as a business expense. Consult a tax professional about your specific situation.
What if I received LTD payments for only part of the year?
Report only the LTD you actually received during that tax year on your return. The 1099-R will show the total for the year. If you started or stopped receiving LTD mid-year, the amount on the form reflects only what you were paid in that calendar year.
Do LTD payments count as income for means-tested benefits like Medicaid?
Yes, LTD payments typically count as income for Medicaid and other means-tested programs, regardless of whether they are taxable. If you receive Medicaid and start receiving LTD, report it to your state Medicaid office, as it may affect your coverage. SSDI does not have an income limit, so LTD does not affect SSDI may be able to access.
If I receive both LTD and SSDI, do I report both on my taxes?
Report the LTD if it is taxable (you will receive a 1099-R). SSDI is handled separately — some SSDI is taxable depending on your total income, but you do not receive a 1099-R for it. You report SSDI using Form SSA-1099, which Social Security sends you. Your tax software or preparer can guide you through reporting both.