CHAPTER 11
DISABILITY BENEFITS
§ 11.01 Overview of Taxation of Disability Benefits
-----[1] Nontaxable Disability Payments
-----[2] Taxable Disability Payments
-----[3] Plans Offering a Tax/Nontax Option
-----[4] Transition from Disability Payments to Retirement Payments
-----[5] Structured Settlement of a Disability Lawsuit or Workers’ Compensation Claim
-----[6] Income Tax Withholding
§ 11.02 Disability Benefits Taxable or Nontaxable Due to Source of Contributions
-----[1] Definition of Sourced Disability Benefits
-----[2] Disability Benefits Entirely Nontaxable Due to Employee Contributions
-----[3] Disability Benefits Entirely Taxable Due to Employer Contributions
-----[4] Partially Taxable Disability Benefits Due to Partial Employer Funding
----------[a] Individual Disability Insurance Policies
----------[b] Group Disability Insurance Policies
----------[c] Multi-Year Disability Covered by Group Insurance
----------[d] Uninsured Disability Plans
----------[e] More than One Class of Employees Covered by a Plan
----------[f] Plan Providing Both Disability Benefits and Other Types of Benefits
---------------[i] Contributions Made to Retirement Plan Trusts or Annuities
---------------[ii] Contributions Made to Other Types of Multi-Benefit Plans
-----[5] Corrections of Employer Errors or Methodology
-----[6] Plans Offering Employees an After-Tax Contribution Option
-----[7] Disability Benefits Paid to Former Employees
-----[8] Potential Conversion of Disability Benefits to Retirement Benefits
-----[9] Disability Payments to Self-Employed Individuals
-----[10] Payroll Taxes and Withholding from Disability Payments
----------[a] Disability Payments Under a Qualified Plan or Eligible State/ Local Government Plan
----------[b] Disability Payments Under Other Types of Plans
----------[c] Social Security (or FICA) Tax Withholding on Disability Payments
§ 11.03 Disability Benefits Nontaxable Regardless of the Source of Funding
-----[1] Categories of Nontaxable Disability Payments
-----[2] Workers' Compensation Benefits
----------[a] Common Types of Excludable Workers' Compensation Benefits
----------[b] In the Nature of Workers’ Compensation
---------------[i] Qualifying as a Statute in the Nature of Workers’ Compensation
---------------[ii] Meaning of Certain Workers’ Compensation Terms
---------------[iii] Disability in the Course of Employment
---------------[iv] Effect of Presumptions
---------------[v] Effect of Poor Administration
---------------[vi] Payments Made Under the Qualifying Statute?
----------[c] Age, Length of Service, or Employee Contributions
----------[d] Choice of Disability or Retirement Provisions
----------[e] Retroactive Reclassifications of Benefits
----------[f] Conversion to Retirement Benefits
----------[g] Tax Treatment of Nonqualifying Benefits
-----[3] Payments for Loss of Limbs, Disfigurement, Etc.
-----[4] Payments for Injuries Due to Actions of Terrorists or the Military
-----[5] Disability Payments to Military Personnel and Others
----------[a] Only Certain Disability Payments Excludable from Gross Income
----------[b] Retroactive Corrections and Tax Refunds for Military Disability
----------[c] Entitlement to Disability Payments from the Department of Veterans Affairs
-----[6] Disability Benefits Paid for Wrongful Acts (Torts)
§ 11.04 Structured Settlement of a Lawsuit or Workers’ Compensation
§ 11.05 Potential Conflicts Between Disability and Social Security Provisions
§ 11.06 Treatment of Interest, Medical Expenses, and Attorney’s Fees
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DISABILITY BENEFITS
§ 11.01 Overview of Taxation of Disability Benefits
-----[1] Nontaxable Disability Payments
-----[2] Taxable Disability Payments
-----[3] Plans Offering a Tax/Nontax Option
-----[4] Transition from Disability Payments to Retirement Payments
-----[5] Structured Settlement of a Disability Lawsuit or Workers’ Compensation Claim
-----[6] Income Tax Withholding
§ 11.02 Disability Benefits Taxable or Nontaxable Due to Source of Contributions
-----[1] Definition of Sourced Disability Benefits
-----[2] Disability Benefits Entirely Nontaxable Due to Employee Contributions
-----[3] Disability Benefits Entirely Taxable Due to Employer Contributions
-----[4] Partially Taxable Disability Benefits Due to Partial Employer Funding
----------[a] Individual Disability Insurance Policies
----------[b] Group Disability Insurance Policies
----------[c] Multi-Year Disability Covered by Group Insurance
----------[d] Uninsured Disability Plans
----------[e] More than One Class of Employees Covered by a Plan
----------[f] Plan Providing Both Disability Benefits and Other Types of Benefits
---------------[i] Contributions Made to Retirement Plan Trusts or Annuities
---------------[ii] Contributions Made to Other Types of Multi-Benefit Plans
-----[5] Corrections of Employer Errors or Methodology
-----[6] Plans Offering Employees an After-Tax Contribution Option
-----[7] Disability Benefits Paid to Former Employees
-----[8] Potential Conversion of Disability Benefits to Retirement Benefits
-----[9] Disability Payments to Self-Employed Individuals
-----[10] Payroll Taxes and Withholding from Disability Payments
----------[a] Disability Payments Under a Qualified Plan or Eligible State/ Local Government Plan
----------[b] Disability Payments Under Other Types of Plans
----------[c] Social Security (or FICA) Tax Withholding on Disability Payments
§ 11.03 Disability Benefits Nontaxable Regardless of the Source of Funding
-----[1] Categories of Nontaxable Disability Payments
-----[2] Workers' Compensation Benefits
----------[a] Common Types of Excludable Workers' Compensation Benefits
----------[b] In the Nature of Workers’ Compensation
---------------[i] Qualifying as a Statute in the Nature of Workers’ Compensation
---------------[ii] Meaning of Certain Workers’ Compensation Terms
---------------[iii] Disability in the Course of Employment
---------------[iv] Effect of Presumptions
---------------[v] Effect of Poor Administration
---------------[vi] Payments Made Under the Qualifying Statute?
----------[c] Age, Length of Service, or Employee Contributions
----------[d] Choice of Disability or Retirement Provisions
----------[e] Retroactive Reclassifications of Benefits
----------[f] Conversion to Retirement Benefits
----------[g] Tax Treatment of Nonqualifying Benefits
-----[3] Payments for Loss of Limbs, Disfigurement, Etc.
-----[4] Payments for Injuries Due to Actions of Terrorists or the Military
-----[5] Disability Payments to Military Personnel and Others
----------[a] Only Certain Disability Payments Excludable from Gross Income
----------[b] Retroactive Corrections and Tax Refunds for Military Disability
----------[c] Entitlement to Disability Payments from the Department of Veterans Affairs
-----[6] Disability Benefits Paid for Wrongful Acts (Torts)
§ 11.04 Structured Settlement of a Lawsuit or Workers’ Compensation
§ 11.05 Potential Conflicts Between Disability and Social Security Provisions
§ 11.06 Treatment of Interest, Medical Expenses, and Attorney’s Fees
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an attorney, accountant, or other professional; and the author is not offering legal, accounting, or
other professional advice. The material presented on this website is not intended for use, and may
not be used, to avoid tax penalties. If you need legal advice or other professional help, you should
seek (from an independent attorney, accountant, or other competent professional) advice based on
your own particular circumstances.
matter covered. However, the information provided on this website is not a substitute for the advice of
an attorney, accountant, or other professional; and the author is not offering legal, accounting, or
other professional advice. The material presented on this website is not intended for use, and may
not be used, to avoid tax penalties. If you need legal advice or other professional help, you should
seek (from an independent attorney, accountant, or other competent professional) advice based on
your own particular circumstances.
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