How An Independent Insurance Agent Can Help
An independent insurance agent can be your knight in shining armor when it comes to figuring out your disability insurance. When you feel like it’s hopeless to find the right kind of coverage at the right price, they gallop in with coverage options that all fit right inside your budget.;;
And when it comes to getting answers on questions like tax deductions and so on, they’ve got your back. Go on, give your local independent insurance agent a call and get going on your short-term disability insurance before its too late.
Is Your Job Protected While You Take Short
Unlike a leave of absence you might take under the Family and Medical Leave Act , short-term disability doesnt offer any direct job protection. Many people are surprised to hear that you can legally be fired from your job while on leave, and you also arent entitled to the exact same position when you return.
However, the Americans With Disabilities Act protects people who meet the ADAs definition of disability, and makes it far more challenging for companies who are covered by ADA to fire an employee due to their disability.
Before terminating an employee, the company must first determine whether or not there are any accommodations they could make that would allow the employee to adequately do their job.
The company must work with the employee to try several variations of accommodations in an effort to find something that works. If theres no reasonable way to enable that person to fulfill the essential responsibilities of their position, only then can the employer explore termination of the employee.
When Benefits Are Taxable: Employer
Normally, you are taxed on any compensation you receive from your employer, regardless of what form it takes. That includes your wages or salary, of course, but it can also include things like one-time bonuses, lodging, and even employer-provided parking.
However, some types of compensation are excluded from your income. Most relevant here, you are not taxed on the amount of premiums paid by your employer to cover you under a group long-term disability insurance policy.
But that exclusion comes with a tradeoff. Although you dont have to pay taxes on the premiums your employer pays, you will generally have to pay taxes on any benefits you receive under that policy if you become disabled.
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Answers To Frequently Asked Questions About Short
What are short-term disability benefits?
Short-term disability is a weekly income benefit. Insurance companies or employers pay eligible workers who cant work because of disability or illness.
Who is eligible for short-term disability benefits?
To be eligible for short-term disability benefits, there are 2 main criteria. These are more detailed in the insurance policy or program. Firstly, you must be covered by a plan. For example, employees are members of a group insurance policy. If youre covered, you must also meet the disability requirements. Usually, this means that you suffer from an illness or disability that prevents you from doing your job.
How long does short-term disability last?
Short-term disability benefits are paid for a specific period of time. This is called the benefit period. The maximum benefit period is 17 weeks for most plans but can go as high as 52 weeks.
How much does short-term disability pay?
The payment is usually based on what you earned before you had to leave work. You will get anywhere from 55% to 100% of what you used to make. You get payments weekly until the benefit period ends.
Can I be laid off or terminated while on short-term disability?Can I get short-term disability and EI sickness benefits?
You cant receive both benefits for the same period. If you do, then you will have to refund EI sickness. You can get them back-to-back, however.
Should I go on workers compensation or short-term disability?
What Evidence Will You Have To Gather In Order To Prove That I Am Entitled To Disability Benefits
Often, the assistance of experts is required in order to prove that you are unable to do your own job and/or any job.
The expert or experts secured to assist in your case will depend on the nature of your injuries. There could be a combination of experts including psychologists, psychiatrists, physiatrists and occupational therapists who will assist in assessing whether or not your injuries/disability is such that your condition meets the definition of disability under the policy.
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How States Tax Short
Taxation doesnt begin and end with the federal government, unless you live in one of the nine states that dont have an income tax:
New Jersey, California, and Rhode Island dont tax short-term disability benefits, but the IRS imposes a few wrinkles.;
For example, the IRS requires that employers in New Jersey must treat short-term disability benefits as third-party sick pay. That makes short-term disability taxable at the federal level according to IRS rules, even though the benefits arent taxable at the state level. This includes the half of FICA taxes that are paid by the employer.;
As for California, employees are required to pay into the states disability insurance program through payroll deductions. But the IRS only taxes these benefits if theyre considered to be a substitute for unemployment insurance, in which case your employer should send you a Form 1099-G reporting the income. Otherwise, your short-term disability benefits arent taxable.;
If youre not sure whether short-term disability is taxable in your state, check with your employers human resources department or a local tax professional.
How Long Does Short
While benefit periods may vary across different providers, most short-term disability policies provide benefits for three to six months. Some policies, especially those connected with a long-term disability policy, may provide short-term coverage for a full year. If an employee needs additional coverage beyond the initial short-term disability period, a long-term disability policy may be needed to extend the benefits.
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Other Sources Of Disability Benefits
You may also be eligible for benefits from the Canada Pension Plan and the Quebec Pension Plan to add to your income when you’re unable to work.
The CPP disability benefit and QPP disability benefit are available to people who have contributed to those plans and aren’t able to work regularly at any job because of a disability.
Do You Need To Pay Taxes On Your Ssdi Benefits
Whether or not you will need to pay taxes on your Social Security Disability benefits will depend on the amount of income you received last year. If your income minus your deductions is greater than the base income , any amount of income you made over the base income for your status is taxable.
On top of figuring out whether a portion of your income will be taxable, you will also need to figure out at what percentage that portion will be taxed. Similar to a standard tax bracket system, the higher you are above the base income, the more your benefits will be taxed. This can greatly assist those individuals and families who are just above the base income for taxation, but not drawing enough money to be taxed at a higher rate.
While the tax legalese can be confusing, you should have received two forms from the Social Security Administration that should make the process easier: Form SSA-1099 and Notice 703, which is a worksheet that helps you determine your income.
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What Do I Need To Do In Order To Apply For Short Term Or Long Term Disability Benefits
You will need to complete a number of documents in order to apply for and receive short term and long term disability benefits. These documents may vary between various insurance companies. However, generally speaking, you will need to complete a general short term or long term disability application form, have your doctor complete a separate medical form describing the nature of your disability along with a descriptions of your restrictions and limitations, and have your employer fill out a separate form describing your job and the physical and mental requirements of your job.
If You Become Disabled Will You Have To Pay Taxes On Your Disability Pay The Answer: It Depends
If you suffer some disabling ailment or injury, you’ll be glad to have disability pay coming in. However, it’s important to understand that the IRS — and your state — may want to take a cut of that pay. Some sources of disability pay will be taxed as income, while others are completely tax-free, and still others may or may not be taxed depending on the situation.
When Will I Have To Pay Taxes On My Benefits
To determine if you will need to pay income tax on your benefits, you will need to assess the total tax-exempt income that you receive during the year as well as the total amount of benefits you receive. It is important to note that the benefits that you will calculate do not include Supplemental Security Income as those benefits are not taxable. If your total benefits exceed the below limits, you will need to pay taxes on a portion of your benefits.
- If you file taxes Single You will need to pay taxes if your combined income is more than $25,000
- If you file taxes as Married filing Jointly You will need to pay taxes if your combined income is more than $32,000
If your combined income is less than the above limits, you will not need to pay any income tax on the Social Security benefits you received that year.
What Are The Benefits Of Short Term Disability
STD provides crucial income replacement when a person is unable to work and bring in an income. Ask yourself could your family pay all their bills and maintain their current lifestyle if you were unable to work for up to 26 weeks?
If the answer is no, you can begin to see how STD can help ease financial strain and the stresses that come with an accident, illness, or injury that prevents you from working.
Canada Pension Plan Disability Benefits
The Canada Pension Plan provides monthly payments to people who contribute to the plan during their working years.
You may be eligible for CPP disability benefits if:
- you contributed to the CPP for a certain number of years
- you’re under 65 years old
- you have a severe and prolonged mental or physical disability
- your disability prevents you from working on a regular basis
The benefits include payments to children of a person with a disability.
Apply as early as possible if you think you’re eligible for CPP disability benefits. Quebec residents may be eligible for a similar program called the Quebec Pension Plan . It may take several months to process your application.
If you applied for CPP or QPP disability benefits and were told that you’re not eligible, you can ask to have your application reviewed or considered again.
Once you reach age 65, your CPP disability benefit will automatically change to regular CPP payments. Your regular CPP payments may be less than the CPP disability payments you got before.
If so, consider:
What To Look Out For
Because the application process for SSDI can take a long time, and the decisions are retroactive, you may receive a lump sum of backpay for the months you were disabled but your application wasnt yet approved. If you add that lump sum to your SSDI income for the year, it could push your earnings over the thresholds or even drive you into a higher tax bracket.
To avoid this, the IRS allows you to spread out the backpay as income over several years by amending your past returns dating back to the date you first applied for Social Security Disability, which is the earliest month that the backpay might apply. Your tax advisor can help you with your options.
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What You Need To Know About Short And Long Term Disability Payments
Do you have your statutory deductions and insurable hours straight when it comes to different forms of disability?
Short term and long term disability payments paid by an employer through payroll and paid directly to the employee are subject to which statutory deduction?Do the payments need to have insurable hours attached to them?All the statutory deductions:; Both short term and long term disability payments paid by an employer through payroll and paid directly to the employee are subject to all the statutory deductions – Income Tax, Canada Pension Plan, and Employment Insurance. In the case of Québec: Income Tax, Québec Pension Plan, Employment Insurance and the Québec Parental Insurance Plan.;In addition, the income associated with the payments must have insurable hours attached to them equal to whatever the employee’s deemed hours normally would have been had they been working. Insurable hours are hours for which the employee receives insurable earnings and “Wage-loss insurance” paid by the employer is insurable.Natasha Smyth, B.SC., CPMFor more information contact ;
How Is Tax Withheld On Disability Benefits
Whether your disability income comes from the SSA or an insurance policy, you can ask to have federal income taxes withheld.
For SSDI, you can ask the SSA to withhold taxes when you first apply, or by completing Form W-4V and selecting a withholding rate of 7%, 10%, 12% or 22%. If you receive disability benefits from an insurance company, you can ask the company to withhold federal income tax by filling out Form W-4S.
Having tax withheld from your monthly payment may help you avoid a tax bill come Tax Day. Just remember, though, if you overpay your taxes, filing a return will be the only way to get your overpayments refunded to you, unless you decide to take the overpayment as a credit toward future tax obligations.
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What Happens If I Get A Disability Insurance Settlement Or Negotiated Buyout
If you and your insurer negotiate a buyout of your long-term disability benefits, youll receive the agreed-upon lump sum amount at once. We recommend seeking the advice of an experienced tax professional regarding the taxability of payments beyond regular monthly benefits and potential deductions for attorneys fees and associated expenses.
What Is Disability Insurance
In a nutshell, disability insurance is used as income replacement if you suffer a non-work-related injury, illness, or disability and can’t bring in a paycheck.;
Typically covering between 40%-70% of your salary, this can be a big help when you need to focus on recovering. But there are a number of different types of disability insurance out there to choose from, such as:
- Individual long-term disability insurance: This disability insurance, you guessed it, is for the long term with benefits that pay out for years and sometimes decades, depending on coverage.
- Individual short-term disability insurance: This is just like long-term disability, but think days and months instead of years and decades. This will also provide coverage for pregnancy and birth events too.
- Group long-term disability insurance: Group long-term provides coverage to a group of employees through your employer. It provides disability coverage for years, and normally a health exam is not needed to qualify. Thats a big bonus.
- Group short-term disability insurance: This is another employer-offered group plan and very similar to group long-term disability coverage. The difference is this policy is for months of disability coverage, not years. A lot of times it’s paid for by your employer, but not always.
Government-backed disability programs:;
How Do You File For Short
If you believe that youll need to take advantage of your short-term disability benefit, your first step is to make sure that your illness or injury is well-documented, as youll have to provide some medical evidence or backing.
Consult with your doctor and find out what youre up against first. Make sure you speak honestly about your symptoms and the things that you are experiencing. That medical record will be reviewed by an insurance company, so start out with a strong pronouncement of, Hey, Im having this problem, advises McDonald.
Then, approach your HR department to begin the process of filing a claim . Dont have an HR department? Connect with your manager or consult your plan documents to understand exactly what you need to do to submit your claim.
Be aware that short-term disability plans have a requirement for how many days you need to be out of work before you can claim disabilityits called an elimination period. The reason is that they dont want to invoke short-term disability for something that could be covered by sick days, says Bartolic.
Is It Wiser To Buy Disability Coverage With Pre
There are many considerations to be made when deciding to pay your premiums with pre-tax or post-tax dollars. For example, what is the nature of your workplace? If you work in a hazardous environment where debilitating injuries are likely to happen, paying with post-tax dollars would be the wiser choice.
Accidents are always unpredictable and can be life-altering. If they do occur, you would be fortunate to receive your benefits tax-free for the duration of your short-term or long-term disability. To be prepared for the worst, it often can be beneficial to pay a little more now to receive a more substantial benefit if you experience an accident leaving you unable to work. Tax-free benefit payments could be closer to your regular take-home pay, helping you maintain financial stability while adjusting to living with your disability or illness.
If you choose to pay for your premium with pre-tax dollars and you become disabled, 100% of your disability benefits will be subject to federal income tax.
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