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As tax season is approaching it is a great time to touch on the relationship between disability insurance policies and taxes. There are a few questions regarding how premiums, policies, and payouts are impacted by taxes. In this post, we’ll cover the concerns and questions that are most relevant to help you understand how taxes affect your disability insurance policy.
The short answer is no. The monthly or yearly premiums that you pay for your long-term disability insurance are not tax-deductible.
This is because the premiums you are paying for your private disability insurance policy are paid with post-tax dollars, meaning your benefit will be tax-free if you need to use it.
There are other types of insurance such as medical insurance that are tax-deductible. This often can cause people to attempt to itemize their disability insurance for a deduction.
The IRS defines medical expenses that are deductible as “payments that are made for medical services” This definition covers unreimbursed expenses, for example:
Dental or vision care
Appliances (ex: glasses)
To name a few.
The IRS also provides examples of different premium types that are not deductible. In this list it mentions policies such as:
Life insurance policies
Loss of earning payment policies
Loss of life, limb, sight, hearing policies
Policies that provide pay-out with a guaranteed amount if you are sick or injured
The section of car insurance that provides insurance coverage for injured members of a car accident
Health or long-term care insurance
The treatment of your policy and premiums in relation to taxes is important when mapping out your financial plan.
We all know how exciting talking about taxes is, so we always recommend consulting a tax professional with any clarifications needed or questions about your unique situation.
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