Is Short-Term Disability Taxable?

When and How Disability Payments Are Taxed

Updated on November 14, 2022

Key Takeaways

Short-term disability benefits can replace a portion of your income while you're unable to work due to injury or illness.
These benefits are often part of a compensation package offered by an employer, but you can also purchase your own policy.
Whether short-term disability benefits are taxable depends on who pays for the coverage. If your employer pays all or part of the premiums, your benefits may be taxable.

When Is Short-Term Disability Taxable?

The IRS considers short-term disability to be a type of sick pay. As such, it's generally only considered to be taxable income if your employer paid the premiums in part or in full. It's also taxable if you paid your own premiums (or a portion of them) with pre-tax dollars.

For example, if your employer deducted your premiums from your pay and then used the balance to calculate tax withholding, your short-term disability would be taxable.

Here's how it breaks down:

If your employer paid 100% of your premiums, all of your short-term disability income is taxable.
If you and your employer split the premiums exactly 50/50, and if you paid your portion of the premiums with after-tax dollars (not paycheck deductions), half of it would be taxed.
If you paid all your premiums yourself with after-tax dollars, your benefits are not taxable.

Note

Your short-term disability benefits aren't taxable if you receive them from a policy for which you personally paid all premiums, such as if you bought your own policy that's not tied to your employer.

How Is Short-Term Disability Taxed?

Let's say you collect $9,000 in short-term disability benefits over six months. Your employer paid half the premiums, and you paid the other half through pre-tax withholding from your paychecks. You must report the entire $9,000 as taxable income on your Form 1040 tax return. You would enter this amount on line 1 of your return, along with all other wages, salaries, or tips you earned. The taxable amount should appear on the W-2 form you received from your employer detailing all your taxable income.

Note

You can submit IRS Form W-4S, the "Request for Federal Income Tax Withholding From Sick Pay" form, to your insurance company to have taxes withheld from your benefits. This will prevent you from ending up with a big tax bill at filing time. You can also voluntarily send estimated tax payments to the IRS to cover any taxes that will ultimately be due.

Exactly how much you'll pay in taxes on short-term disability income depends on your overall income from all sources. You'll pay a percentage of the benefits equal to your top tax bracket when you add up your total income. Here are the tax brackets for a single individual in 2022:

Total Income	Tax Bracket
Up to $10,275	10%
$10,276 to $41,775	12%
$41,776 to $89,075	22%
$89,076 to $170,050	24%
$170,051 to $215,950	32%
$215,951 to $539,900	35%
$539,901 or more	37%

To continue our example above, say you earned $36,000 in salary and wages, plus $9,000 in short-term disability benefits, for a total taxable income of $45,000. The first $10,275 of your income would be taxed at 10%. Then you'd be taxed 12% on the portion of your income between $10,276 to $41,775—which includes most of your salary and the first $3,225 of your short-term disability benefits.

Finally, you'd pay 22% on the portion of your income over $41,775, which is the remaining $3,225 of your benefits.

Note

These tax brackets pertain only to single individuals and to married taxpayers who file separate returns. Tax brackets are different and a bit more generous for taxpayers who can file as head of household and married taxpayers who file joint returns.

How States Tax Short-Term Disability Benefits

Taxation doesn't begin and end with the federal government. There are only nine states that don't have an income tax:

Alaska
Florida
Nevada
New Hampshire
South Dakota
Tennessee
Texas
Washington
Wyoming

New Jersey, California, and Rhode Island don't tax short-term disability benefits, but the IRS imposes a few wrinkles.

For example, the IRS requires that employers in New Jersey must treat short-term disability benefits as third-party sick pay. That makes short-term disability taxable at the federal level, according to IRS rules, even though the benefits aren't taxable at the state level. This includes the FICA taxes (Social Security and Medicare) that are paid by the employer.

As for California, employees are required to pay into the state's disability insurance program through payroll deductions. But the IRS only taxes these benefits if they're considered to be a substitute for unemployment insurance, in which case your employer should send you a Form 1099-G reporting the income. Otherwise, your short-term disability benefits aren't taxable.

If you're not sure whether short-term disability is taxable in your state, check with your employer's human resources department or a local tax professional.

Frequently Asked Questions (FAQs)

How do I report short-term disability on taxes?

You would enter it as a part of your income, along with all other wages, salaries, or tips you earned. When your employer gives you a W-2 form, it will outline the amount of your short-term disability that is taxable.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

Bureau of Labor Statistics. "National Compensation Survey: Glossary of Employee Benefit Terms."
IRS. "Section 45S Employer Credit for Paid Family and Medical Leave FAQs," See "Q: Can paid leave allowed under an employer’s short-term disability program be characterized as family and medical leave?"
IRS. "Frequently Asked Questions / Life Insurance & Disability Insurance Proceeds."
IRS. "Publication 525: Taxable and Nontaxable Income," Page 20.
IRS. "IRS Provides Tax Inflation Adjustments for Tax Year 2022."
State of New Jersey Department of Labor and Workforce Development. "Tax Reporting Requirements for Temporary Disability and Unemployment Insurance."
State of California Employment Development Department. "Employer Eligibility and Benefits FAQs," see "Do I have to pay for Disability Insurance or Paid Family Leave?"
State of California Employment Development Department. "Form 1099G FAQs."
State of California Employment Development Department. "Disability Insurance – Benefits and Payments FAQs," see "Do I need to report my Disability Insurance benefits for tax purposes?"