How to Insure Your Income: Tax Considerations

Premiums paid for an individually owned disability income plan are not tax-deductible. However, benefits received from the policy are tax-free.

This concept also applies to a sole proprietorship or a partnership. A sole proprietorship is a non-incorporated form of business owned by one individual. A sole proprietor is not considered an employee. Therefore, any coverage provided through the business is considered individually owned.

Likewise, partners are not considered employees. Therefore disability benefits will be considered individually owned. Thus, the premiums are not deductible, but the benefits are tax-free.

Note: A sole proprietorship or a partnership that provides a formal sick pay plan for employees will receive a tax deduction for the premiums paid on behalf of the employees. In these instances, benefits received by the employees are taxable.