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Do I pay taxes on disability benefits?

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It can be somewhat confusing for most people to determine whether their disability benefits are taxable. According to one financial planner, disability payment may or may not be taxable depending who made the premium payments and whether those payments are deductible.

If your benefits are coming from a private disability insurance policy, then the benefits are usually not taxable. This is because the premiums are usually paid with after-tax dollars. This means the individual is not eligible to claim the premiums as a medical deduction when he or she files a tax return.

If your benefits are coming from an employer-provided policy, with the employer paying for the premiums, then the taxability of the benefits would be based on whether the employer included the premium amounts in the employee's gross earnings. If that was down, then the benefits are not taxable. If the premium amounts weren't included, then the benefit amounts would be taxable.

In many cases, an employer will pay a part of the premium and the employee is left to pay the other part. The part the employer paid -- if it was not included in the employee's gross earnings -- would be taxable.

As you can see, the taxability of disability benefits can be complex. If you are still struggling to receive your disability benefits or your claim as been denied, an attorney can help. He or she can file a lawsuit on your behalf seeking your benefits or pursue an appeal on the claim denial. Because seeking benefits after a claim denial can also be complex, it's important to have an experienced lawyer moving forward.

Source: New Jersey 101.5, "Are disability benefits taxable or tax-free?," Karin Price Mueller, accessed Aug. 22, 2016

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