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Is disability insurance tax deductible?

When you're filing your taxes, you're usually on the lookout to take advantage of every tax deduction and tax credit you can to lower your taxes. Insurance costs can often eat into your income and many taxpayers try to deduct these costs when filing their taxes.

So if you're wondering whether disability insurance is tax-deductible, the answer is unfortunately no. You cannot write off disability insurance premiums on your taxes. However, there are certain conditions where there are exceptions to this.

When are disability insurance premiums tax deductible?

If you are self-employed, an independent contractor, a freelancer or gig worker, you will usually not have any disability insurance coverage provided by your employer as you are not a full-time employee.

And even if you have your own private disability insurance, you cannot deduct those premiums. The only way you can write them off is if you provide disability insurance to your employees, in which case you can write them off as an expense.

To do this, you will record it on your Schedule C and file it alongside the standard Form 1040. You can check whether your disability insurance is a tax deduction by using a 1099 tax calculator.  

The IRS allows taxpayers to deduct any long-term disability insurance premiums from their taxes provided they claim it as a medical expense and use the itemized deduction. You should only use this option if you think your premiums will exceed the standard deduction that is offered.

While you cannot deduct disability insurance premiums, you will not be taxed on the benefit you receive if you ever collect them. This is because that amount is paid for “post-tax.” You can also deduct any premium you pay for “business overhead expense” insurance.

Infographic entitled What Is Business Overhead Expense Insurance describing a type of disability insurance that is tax-deductible.

Is short-term disability taxable?

Let’s say you own a small candle-making business. One day, when testing your products, you burn your hand, and your doctor tells you it will take a few weeks to heal. This puts you out of commission for a while.

Luckily, you thought ahead and bought short-term disability insurance. The benefits you receive from this until you are able to work again will not be taxable as you are paying for the premiums yourself as a self-employed individual.

And as we mentioned earlier, long-term disability insurance is also not taxable as long as you are paying for the premiums yourself. This means any disability income (or benefits) you receive is tax-free.

Being self-employed and paying for insurance premiums out of pocket can be challenging. That is why it is important to make sure you are claiming every tax write-off available so that you’re paying as little tax as possible.

This is where FlyFin comes in. By just linking your expenses, the A.I. tax engine finds every possible deduction that you can claim, saving you time and money. CPAs who are experts in 1099 taxes are available 24/7 in the app to answer any tax question you have.

You can also use this self-employed income tax calculator to accurately figure out your tax liability. If you owe the IRS $1,000 or more in taxes over a calendar year, you’ll have to make an estimated tax payment every quarter. You can use a quarterly tax calculator to calculate your amount and if you’ve missed a tax deadline and are subject to penalties from the IRS, you can use a tax penalty calculator.

FlyFin CPA Team

FlyFin CPA Team

With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.

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