Tax Facts

383 / How are benefits provided under a personal disability income coverage plan taxed?

Benefits from personal disability income coverage typically are entirely exempt from income tax. There is no limit on the amount of benefits, including the amount of disability income that can be received tax-free under personally paid disability income coverage.1

If benefits are received under a plan to which both an employer and employee have contributed, the portion of the disability income attributable to the employee’s contributions is tax-free ( Q 380).2

1.     IRC § 104(a)(3); Rev. Rul. 55-331, 1955-1 CB 271, modified by Rev. Rul. 68-212, 1968-1 CB 91; Rev. Rul. 70-394, 1970-2 CB 34.

2.     Treas. Reg. § 1.105-1(c).

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