1. Agree. Disability insurance has had those rules for years. If you pay with post tax dollars, you don't pay for benefits.
2. Pre-tax dollars means actually not taxed. Like a 401k at work, those are pre-tax dollars. There is a difference between box 1 and box 3 on your w2. Your wages are on box 3 but the taxable wages are box 1.
You can ask your employer/ payroll if the amount is pre-tax or post-tax.
If it is post-tax, then I would keep the paystubs and proof and claim only the percentage you did not pay.
If pre -tax, all taxable.
[Edit 4/13/2023 11:37 AM]
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