Legal Question in Tax Law in California
What should I be taxed while on Long Term Disability?
Hello,
I have been on Long Term Disability for about a year now and I would like to know a few things regarding taxes that have been taken out of my LTD checks.
First of all, being on LTD, I am supposed to receive two-thirds of my normal salary. From what I understand, since I am disabled and am only getting a portion of my normal salary, this amount either wasn't supposed to be taxed, or was just taxed a very, VERY small percentage. Are either of these theories correct?
Secondly, while waiting for a decision from Social Security on whether or not I would qualify for their disability benefits, my employer was witholding nearly two-thirds out of my monthly LTD check (the amount they say that I would be getting from Social Security). I have no idea if this was legal of them to withhold my money every month or not.
By the time I got the decision from Soc. Sec., I was owed approximately $25,000.00. This amount was paid to me by my employer, but it was taxed like any other overtime check or regular employee check, with FULL federal and state taxes taken out. I told my companies payroll people that I'm not supposed to pay that many taxes while on LTD, but they said their system was set like that and their hands were tied.
1 Answer from Attorneys
Re: What should I be taxed while on Long Term Disability?
The answer to this question depends on who paid the insurance premiums. If the insured paid the premiums with after-tax dollars, then the disability benefits should be received income tax-free. In contrast, if an employer paid part or all of the premiums then an equivalent portion of the benefits are generally taxable to the insured (in this instance, however, an income tax credit may be available to the insured).
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