Tax Facts

378 / Are premiums paid for business overhead expense disability insurance deductible as a business expense?

Yes. The IRS has ruled that premiums paid on an overhead expense disability policy, a special type of contract that reimburses professionals or owner-operators for overhead expenses actually incurred during periods of disability, are deductible as a business expense and the proceeds are taxable.1 The ruling relates to self-employed individuals.

Premiums paid on standard personal disability insurance are not deductible as a business expense but the proceeds are tax-exempt as compensation for personal injuries or sickness ( Q 382).2 This is true even though a taxpayer intends to use the benefits to pay overhead expenses during periods of disability.3 (See Q 377.)

1.     Rev. Rul. 55-264, 1955-1 CB 11.

2.     Rev. Rul. 55-331, 1955-1 CB 271; Rev. Rul. 70-394, 1970-2 CB 34.

3.     Rev. Rul. 58-480, 1958-2 CB 62; Blaess v. Commissioner, 28 TC 710 (1957); Andrews v. Commissioner, TC Memo 1970-32.

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