This question does not have a yes or no answer. Sometimes the government does tax long term disability income. However, before a government would take such an action, it would look to see who had paid for the premiums on the policy. If an employer had paid the premiums, then any employees seeking benefits under the employer’s plan would get taxed for their income.
Timing of premium payments a factor to consider
If a plan enrollee has paid the premiums, then the government would check on the timing of such payments. Was the payment made using pre- or post-tax income? If the premiums had been paid by using pre-tax income, then the disability payments could get taxed.
At the present time, that rule applies to Canadian workers, but not necessarily all workers in USA. If Canada were to adopt a practice similar to one in the United States, the government’s rules, regarding pre- and post-tax income might get changed.
Currently, some American companies allow their employees to list those expected payments that are to come out of pre-tax income. This provides the employees with a chance to set aside money for expected expenses, such as the cost of eye care. It may be that someone receiving disability payments does not get a chance to create a listing of the money that the company has agreed to set aside for expected expenses.
An exception to the rule
It has been stated that an employee receiving disability income will get taxed on that income, if the employer has paid the premiums. That is usually the case, but there are exceptions to that particular rule. Those exceptions concern an action performed by the employer.
Once a year, every employer must report the amount of money taken in by the employer’s business, and the money paid out, in order to cover expenses. That includes the money paid to employees. An employer would not be performing an illegal act, if he or she were to include the payments for premiums with the money that was part of a given employee’s income.
If an employer has chosen to report a premium payment as income, then the employee that enjoys any disability payments will not have to get taxed for such payments. In other words, the employer has done all employees a favor by reporting specific premium payments as income to a given employee.
Admittedly, not every employee will become disabled and apply for such payments. Still, no employee can be sure that he or she will never become disabled. Consequently, the employer’s decision to report the money spent on premiums as part of an employee’s income should be seen as a favor to all employees. However, an accident victim has the right to hire the personal injury lawyer in Sault Ste Marie to ensure that everything works as per current laws.