If you've recently suffered an accident or illness that has left you unable to hold down your full time job, you may have already begun receiving short term disability benefits through an insurance policy offered by your employer. However, these benefits expire quickly -- generally within 6 months after you become disabled -- and if your long term disability benefits aren't enough to cover your expenses, you may be considering filing for Social Security Disability (SSD). How do these benefits coordinate with private disability insurance? Will you face tax issues if receiving two types of disability benefits at once? Read on to learn more about how private short and long term disability benefits intersect with SSD.
Can you receive private disability benefits and SSD at the same time?
Most short term disability insurance policies will begin paying you benefits very shortly after your disabling event. These benefits make up a certain percentage of your pre-disability salary -- usually two thirds of your salary, although some policies may be more generous. Once your short term benefits have phased out, you may begin receiving long term disability benefits for an extended period of time, but often in a lower percentage of your pre-disability salary.
Some short term disability insurers will refuse to make payments if you've already begun receiving SSD benefits. However, because the Social Security Administration requires a five-month waiting period between the date of your disability and the date you'll receive your first check, it's unlikely you'll still be receiving short term disability when your SSD begins. Because it can sometimes take a while for your SSD claim to be reviewed and approved (or appealed), it's important to file your SSD claim as quickly as you can gather the necessary information, so that you can begin receiving benefits as soon as possible.
However, if you receive long term disability benefits and SSD benefits at the same time, your SSD benefits will be reduced once your total benefit amount reaches 80 percent of your pre-disability pay. Your long term disability benefits should continue uninterrupted until they phase out in accordance with your insurer's agreement, at which time your SSD benefits will rise to the amount prescribed by your work history and reported salary.
Will you pay taxes on short or long term disability and SSD benefits?
If you're receiving short term disability benefits, you'll likely be required to pay income taxes on these benefits if the premiums were paid (by either you or your employer) with untaxed dollars. If premiums were paid with after-tax dollars, which is relatively rare, you may not owe taxes on your disability income. If you have a spouse who also earns income, it may be worthwhile to consult an attorney or tax professional to ensure that you're fully aware of all the potential deductions (and hidden costs) that may await. There are certain legal protections you may wish to put in place to protect your or your spouse's assets.
Once you begin receiving SSD benefits, these benefits shouldn't be taxed unless you or your spouse has another source of income above a specific threshold. If your "outside" income reaches a certain amount, a portion of your SSD benefits may be taxed at your marginal rate. Some states may also assess income taxes on SSD benefits, although most states view these benefits as tax-exempt.
When you're receiving both long term disability and SSD benefits at the same time, you'll likely be assessed taxes on both sources of disability income once this income reaches a certain threshold based on your family size. Again, it will likely be worthwhile to consult an attorney or tax professional to ensure that you won't later be assessed penalties or interest for underpayments. You can find an attorney online at http://toddeast.com/.
