MISC INCOME

[GeorgeM]

Client received 2 1099 misc forms from insurance co. for short and long term disability income.

is this taxable, and it is marked other income?

[pikester1967]

Disability Income

Disability income is not taxable if the individual paid the premiums on the disability policy or contributed (on an after-tax basis) to an employer-sponsored disability plan [IRC Secs. 104(a)(3) and 105; Rev. Rul. 58-90; Ltr. Rul. 200305013]. Disability income is taxable if an employer contributes to a funded plan or pays the policy's premiums for the employee (Kees). When the taxpayer reimbursed his firm for disability premiums paid by the firm by deducting the premium amounts from his shareholder loan account, the Tax Court ruled that disability benefits received by this taxpayer were excludable from his gross income under IRC Sec. 104(a)(3). From the inception of the policy until the premiums were waived, the taxpayer treated the premiums as personal items and paid his share of the premiums through his loan account, and the firm never deducted them (Cotler).

Payments for loss of use or function of the body (e.g., limb) are always nontaxable [IRC Sec. 105©]. Individuals receiving taxable disability income for permanent and total disability may be able to claim the credit for the elderly or disabled, discussed in IRS Pub. 524.