Disability insurance is basically coverage for your income — if you get hurt or sick and can’t work, you can file a claim and receive payments until you can go back to your job. Unlike regular health insurance, you can’t write off disability insurance premiums.
While your premiums aren’t tax deductible, if you have an individual disability insurance policy (meaning one you bought for yourself instead of getting through work) any benefits you receive from a claim won’t be taxed like normal income. You can find affordable disability insurance rates by comparing quotes from multiple disability insurance companies before buying coverage.
Can you deduct disability insurance premiums on your taxes?
Although you can write off some medical expenses and even certain types of insurance, you can’t deduct disability insurance premiums on your taxes.
The Internal Revenue Service (IRS) doesn’t allow you to deduct “payment for loss of earnings” — includes disability insurance, which pays benefits when a disability makes it impossible for you to work.
You can’t deduct the premiums you pay for other types of policies that are like disability insurance either, such as accident insurance and critical illness insurance. These both pay out if you’re injured or hospitalized.
Are disability benefits taxable?
The answer is, it depends on your policy. If you have individual disability insurance you bought yourself, that means you paid for your disability insurance with money that’s already been taxed and don’t have to pay taxes on future benefits.
That’s why most disability insurance policies only cover about 60% to 80% of your income — your benefits replace your take-home pay, not your gross income.
You’ll probably have to pay taxes on any benefits if you get group disability insurance coverage through work, since it was either covered by your employer or paid for with untaxed dollars taken straight from your paycheck.
Read more about disability insurance benefits and taxes
What if you own a small business?
If you’re a small-business owner, you may be able to write off the cost of disability insurance you pay for your employees as a business expense. You still can’t write off the personal disability insurance that you buy for yourself.
It’s also possible to write off the cost of business overhead expense insurance. This is a kind of disability insurance that protects your business, not your own income. If you’re sick or hurt and can’t work, you can use business overhead expense insurance to pay your business’s rent, debt, payroll, and other expenses.
Are disability benefits from Social Security tax-deductible?
You don’t need to worry about deducting any expenses for Social Security because, unlike private disability insurance, Social Security is free. Keep in mind that only about one third of applicants actually qualify for disability benefits from Social Security.
If you start receiving disability payments from the Social Security Disability Insurance program (SSDI), your benefits aren’t taxable unless you take in more than your “base amount” — that’s a pre-set income amount that changes based on how you file taxes.
Filing status | Base amount |
|---|---|
Single, head of household, qualifying surviving spouse | $25,000 |
Married and filing jointly | $32,000 |
Married and filing separately and lived away from your spouse for the whole year | $25,000 |
Married and filing separately and lived with your spouse for the whole year | $0 |
Source: IRS table for base income amounts by filing status
Read more about Social Security and taxes
Can you deduct medical care if you have a disability?
While your disability insurance premiums are not tax-deductible, you may be able to deduct some of your dental, vision, and medical expenses. The IRS allows this if certain expenses come to more than 7.5% of your adjusted gross income (AGI).
You can only deduct expenses that aren’t covered by insurance. Depending on your situation, you may be able to deduct costs like (but not limited to):
Fees paid to doctors, dentists, surgeons, and other health care providers
Some hospital and nursing care
Drug and alcohol treatment
Some prescription drugs and insulin
Transportation to a hospital or other treatment center
