Disability & Long-Term CareQuestion 644 of 716
When an individual pays disability income premiums with after-tax dollars, the benefits received are:
a.Taxed as capital gains
b.Received income-tax-free
c.Subject to a 10% penalty
d.Fully taxable as ordinary income
Explanation
Because the premiums were paid with already-taxed money, individually purchased DI benefits are received tax-free. Employer-paid premiums that were not taxed to the employee produce taxable benefits.
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Reviewed by John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verify)