Disability paid by an insurance company for things like lost wages, loss of limb, or loss of sight may or may not be taxable, depending on circumstance:
- If the premiums were paid by your employer and weren't included in your taxable income, the disability is taxable
- If you paid the premiums out of your own pocket or with payroll deductions that came out of your after-tax income, the disability isn't taxable
- If you and your employer jointly paid the premiums, only the disability amount covered by your employer's payments are taxable
I would report taxable income of only the portion of the payments covered by your employer. The portion you paid for post-tax is not taxable. Keep detailed records of your computations in the unlikely event you receive an inquiry.
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