Just about everyone needs to pay income tax every year, but you don't pay tax on your entire income. You can deduct the cost of certain expenses you incurred during the year, like student loan interest. These deductible expenses decrease the amount of your income that is subject to tax.
Unfortunately, you cannot deduct disability insurance premiums on your taxes. Long-term disability insurance can protect your income, and premiums typically cost 1% to 3% of your salary.
However, if you have medical bills because of an injury or illness and become disabled, you may be able to deduct those medical expenses on your taxes. This would require you to itemize deductions on your federal income tax return.
Even though you can't deduct your premiums for disability insurance, your disability insurance benefits aren't taxable if you paid for the policy with after-tax dollars.
Can I claim disability insurance premiums on my taxes?
The IRS specifically says you can't deduct disability insurance premiums or payments you make for a policy designed to replace income. In addition to disability insurance premiums, the following are not deductible:
Premiums for accident insurance or similar policies that cover the loss of life, limb, or sight
Premiums for private policies that provide payment for loss of earnings
Any policies that pay you a guaranteed amount each week, for a stated number of weeks, if you are hospitalized for sickness or injury
The part of your auto insurance that provides medical insurance coverage for all persons injured in or by your car
Health insurance or long-term care insurance premiums if you paid these premiums directly to the insurance provider with tax-free distributions from a retirement plan
On the other hand, there are certain cases where you might be able to deduct insurance premiums.
Long-term care insurance premiums are deductible as medical expenses if you itemize and claim the medical expense deduction on your income tax return.
Health insurance premiums are deductible for business owners if they buy a policy for themselves, a spouse, and dependents.
Homeowners or renters insurance for business property, including a home office, may be deductible as a business expense.
Life insurance premiums may be deductible if you buy a policy for an employee, and you're not the beneficiary of the plan.
Auto insurance premiums may be deductible if you use your personal vehicle for business, but it requires keeping a lot of records for the care of your vehicle.
Is disability insurance tax-deductible if you’re self-employed?
People who are self-employed and have their own individual long-term disability insurance policy cannot deduct the premiums from their taxes. However, if you’re a business owner who provides disability coverage for employees, by covering the premiums, you can generally deduct the costs as a business expense. Consult with a tax professional for more information.
Premiums are also deductible for business overhead insurance, which is a policy that protects business owners’ operating expenses, not their income, when they become disabled.
→ Learn more about disability insurance when you’re self-employed
Tax-deductible medical expenses when you’re disabled
While your disability insurance premiums are not tax-deductible, you may be able to deduct dental, vision, and medical expenses if the total you spent during the year was worth more than 7.5% of your adjusted gross income (AGI).
You can only deduct these expenses if you itemize your deductions and claim the medical expense deduction. It isn't worth it for most people to itemize, but you may want to if you, your spouse, or dependents, have significant medical bills and other itemized expenses, like mortgage interest and property taxes.
How to deduct insurance premiums
Everyone who files a tax return can claim the standard deduction, which is a set amount based on your filing status. If you have certain types of expenses, including some medical expenses, you can choose to itemize deductions instead of taking the standard deduction.
The standard deduction is $13,850 for single tax filers in 2023 and married couples can take a standard deduction of $27,700.
Itemizing is only worth it if your itemized deductions are worth more than the standard deduction, which isn't the case for most people. After the Tax Cuts and Jobs Act of 2017 greatly increased the standard deduction, only about 11% of taxpayers itemize deductions.
Frequently asked questions
Is disability insurance tax-deductible?
Premiums are not tax-deductible for disability insurance. You cannot claim long-term disability premiums on your personal tax return.
Are disability insurance premiums tax-deductible for businesses?
Business owners can usually deduct premiums paid for their employee’s disability coverage when they file taxes.
What insurance premiums can be deducted on taxes?
You can deduct premiums for business overhead insurance, a type of disability insurance which covers business owners expenses when they become disabled. Self-employed people and business owners may also be able to deduct premiums for health insurance, life insurance, and disability insurance coverage they provide to employees.
