Generally, if you receive the proceeds under a life insurance contract
because of the death of the insured person the benefits are not taxable income
and do not have to be reported. Any interest you receive would be taxable
and would need to be reported just like any other interest received.
However, if the policy was transferred to you for valuable consideration,
the exclusion for the proceeds is limited to the sum of the consideration
you paid, additional premiums you paid, and certain other amounts. There are
some exceptions to this rule. For additional information, call 1 800-829-1040.
I am receiving long-term disability. Is it considered taxable?
Generally, you must report as income any amount you receive for your disability
through an accident or health insurance plan paid for by your employer.
If both you and your employer have paid the premiums for the plan, only
the amount you receive for your disability that is due to your employer's
payments is reported as income. If you pay the entire cost of a health or
accident insurance plan, do not include any amounts you receive for your disability
as income on your tax return. If you pay the premiums of a health or accident
insurance plan through a cafeteria plan, and the amount of the premium was
not included as taxable income to you; the premiums are considered paid by
your employer, and the disability benefits are fully taxable.
Refer to Publication 525, Taxable and Nontaxable Income, for
more details. If the amounts are taxable, you can submit a Form W-4S (PDF), Request for Federal Income Tax Withholding, to the insurance
company, or make estimated tax payments by filing Form 1040-ES (PDF), Estimated Tax for Individuals.
Amounts you receive from your employer while you are sick or injured are
part of your salary or wages. Report the amount you receive on the line for Wages, salaries, tips, etc, on Form 1040 (PDF); Form 1040A (PDF); Form 1040EZ (PDF). You must include in your income sick pay from any of the following:
- A welfare fund.
- A state sickness or disability fund.
- An association of employers or employees.
- An insurance company, if your employer paid for the plan.
Payments you receive from qualified long-term care insurance contracts
will generally be excluded from income as reimbursement of medical expenses
received for personal injury or sickness under an accident and health insurance
contract. Also, certain payments received under a life insurance contract
on the life of a terminally or chronically ill individual (accelerated death
benefits) can be excluded from income. Refer to Publication 907, Tax
Highlights for Persons with Disabilities.
You may be able to deduct your out of pocket expenses for medical care
above any reimbursements, if you are eligible to itemize your deductions.
You will need to review Publication 502, Medical and Dental Expenses.
For more information, refer to Publication 907, Tax Highlights
for Persons with Disabilities.
