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Are Long-Term Disability Lump-Sum Settlements Taxable?

Unfortunately, paying taxes is an inevitable element of life—especially in the United States. However, taxpayers do reap some benefits for paying taxes, such as stable infrastructure, fire and police protection, as well as health and social safety net programs.

If you’ve decided to accept a lump-sum settlement offer from your long-term disability insurance provider, you may wonder about the tax implications for your settlement.

Read on to learn what you need to know.

The Taxes Will Depend On How the Plan Is Paid For

The leading factor that will help determine whether you must pay taxes on a long-term disability lump-sum settlement is who paid for the insurance premium. The long-term disability settlement will typically be tax-free if you paid for the premium with money that had already been taxed (such as taxable income).

However, if you paid for the insurance premium with money that hadn’t been taxed yet, or if your employer paid for it, then your settlement may be taxed at regular income tax rates.

If your settlement is eligible for taxation, then you may have to pay a hefty amount of tax if you accept your long-term disability benefits as a lump-sum payment.

We Can Help You Make a Decision

If you’ve been offered a lump-sum settlement for your long-term disability benefits, there are many things you need to consider. It’s important that you speak with a professional who knows the ins and outs of the industry so that you aren’t caught off guard with any surprises you may not be expecting.

Don’t hesitate to reach out to our skilled team right away to learn more about how we can help you make the best choice for yourself and your family.

Call Dabdoub Law Firm today at (800) 969-0488 to speak with an experienced attorney about your case.