Solved: I've settled out-of-court for a long-term disability claim. The LTD policy premiums were paid with after-tax dollars. Is the out-of-court settlement taxable?
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New Member

I've settled out-of-court for a long-term disability claim. The LTD policy premiums were paid with after-tax dollars. Is the out-of-court settlement taxable?

I became disabled and unable to work, and the insurance company paid benefits before eventually terminating benefits. We took them to court, and they settled before the case went to trial.

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Level 6

I've settled out-of-court for a long-term disability claim. The LTD policy premiums were paid with after-tax dollars. Is the out-of-court settlement taxable?

Long-term disability benefits are not taxable when the insurance premiums are paid with after-tax dollars. As the settlement is considered as your long-term disability benefits, it is not taxable. And any legal fees you incurred are not deductible.

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Level 6

I've settled out-of-court for a long-term disability claim. The LTD policy premiums were paid with after-tax dollars. Is the out-of-court settlement taxable?

Long-term disability benefits are not taxable when the insurance premiums are paid with after-tax dollars. As the settlement is considered as your long-term disability benefits, it is not taxable. And any legal fees you incurred are not deductible.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"

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New Member

I've settled out-of-court for a long-term disability claim. The LTD policy premiums were paid with after-tax dollars. Is the out-of-court settlement taxable?

I have the same situation.  My premiums were paid entirely by me with post tax dollars.  However, just to verify that I won’t owe tax on the out-of-court settlement, I’d like to find this same info on the IRS website.  Can someone point me to this?  I’ve looked high and low.  Thanks.

Level 14

I've settled out-of-court for a long-term disability claim. The LTD policy premiums were paid with after-tax dollars. Is the out-of-court settlement taxable?

@peter07043 :

 

See pages 17-19, "Sickness and Injury Benefits", in this IRS reference:  https://www.irs.gov/pub/irs-pdf/p525.pdf

**Answers are correct to the best of my ability but do not constitute tax or legal advice.**

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