Paying taxes on disability income in Canada


18th November: Are you paying taxes on disability insurance premiums? Well, it depends on the total income amount and the filing status of the concerned individual.

Premiums for disability insurance, including those for short-term disability and long-term disability, can be subject to income tax deductions depending on who pays such premiums.

If you have made payments for the disability insurance, it will be tax free if you receive disability insurance or if the costs of insurance for all workers was paid by the company or the employer and was included in the each worker’s taxable income.

What is disability insurance—It is a tax-credit that is non-refundable and can be claimed by a person having a qualifying impairment for getting reductions in his income tax to be paid each year. Aim of such disability tax credit is to enable those suffering with a disability deal with additional costs involved in living and working.

So, the concerned person must see if he or she is eligible for the DTC (disability tax credit) for claiming disability amount on the income tax return to be paid.

Disability premiums by employer-- If it’s the company that’s paying the disability insurance premiums and it’s not included as an income for the employee, then such benefits paid to the employee as a disability claim are liable to be taxed.

And it holds good both for short-term disability (STD) or long-term disability (LTD) benefits.

However, if the concerned employee makes a reimbursement to his employer or company the disability insurance premiums for a minimum of three years before the claim or the length of employment, whichever is lesser, then such premiums are deemed to be paid by the employee and hence not liable to tax deductions.

Worker Compensation benefits tax-free–Any compensation benefits given to workers are not liable to tax deductions since they are due to any accident distinct from disability.

Under law, dismemberment and accidental death benefits are exempt from tax. And life insurance benefits are also tax-free. Group life insurance, if it does not exceed $50,000 for each worker, is excluded from the income of the employee.

However, any excess insurance benefit extended to any employee is included in the income of the employee as per IRS tables.