When you receive Long Term Disability benefits, you might have a long list of questions and queries doing rounds in your head. Whenever there is any monetary benefit, the tax concern always arises. Initially, the benefits were taxed annually, but the changes brought about require the benefits to be taxed when the payments are issued. https://grillo.ca/are-long-term-disability-benefits-taxable/ will help you find all your LTD tax-related answers.
The LTD and STS Wage Loss Replacement Plans (WLRPs) provide insurance cover to the employee if they have lost their employment income due to disability, accident, or sickness. It is usually subject to tax when the employer is contributing. The plans that fall under income-replacement benefits are the payments made to the person who cannot work due to auto accidents. Hence, they are usually not taxed.
Are employee-paid premiums taxed?
If the employee makes the total premium payments for their STD and LTD plans, then the benefits are not taxed. When the employee pays their LTD insurance premium, they are not using the “after-tax” dollars. By “after-tax” dollars, it means that one doesn’t reduce their income tax for the premiums of the disability insurance. You get the disability benefit in such a situation due to the insurance plan you were paying premiums for. Hence, you will generally not be taxed.
Are Employer-paid premiums taxed?
Any compensation that is received from the employer is taxed in Canada. Be it salaries, wages, or one-time bonuses, all of these are taxed. However, the employer doesn’t have to pay taxes on the premiums which cover the employees under a group LTD or STD insurance policy. However, that’s not all. In case of disability, you would be required to pay taxes on the benefits that you receive. Hence, premiums to be paid to you can either be added to your income through the payroll or given to you in a lump sum at the end of each year in the fourth quarter.
Suppose the group disability insurance premiums are shared between you and the employer. In that case, you are entitled to the benefits which are equal to the contributions that you have made. These benefits are non-taxable. Suppose you do qualify for a non-taxable plan. In that case, you are under a legal obligation to pay the entire premium. This needs to be proven in practice. To confirm that the payment of the premium is taking place, the employer needs to show that the premiums have been accounted for by payroll deductions or records.
Reach out to a lawyer
Taxes in themselves are complicated, and when Long Term Disability benefits are in the pictures, things might seem a lot more complex than they should. Having an experienced lawyer who is well-versed with all the legal implications would have the necessary skills and knowledge to help you make the most out of your LTD insurance plan. They will make the required appeal to the insurer, too, if you feel there would be issues getting your dues.