Discussion:Disability
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Discussion Forum Index --> Tax Questions --> Disability
| 27 June 2008 | |
| I am having trouble finding an answer to my question. A sole prop paid disability insurance premiums and deducted them on the sch c. Subsequently, they have received some income on that policy. I believe that the income is taxable, but is it subject to social security tax? | |
| June 28, 2008 | |
| AAS, I moved this to the tax discussion where you're more likely to get answers. | |
| 28 June 2008 | |
| The ins co should be able to tell you. If it was paid for the sole prop, part of it is probably not taxable.
Usually if it's paid for by the EE, the benefit is partly not taxed. In this case the prop pd it for himself. | |
| 28 June 2008 | |
| He should have never deducted the disability premiums period. It's private disability in this instance, and is not a proper business expense for a Sole. P. as owner, or even a proper deduction as self-employed health insurance. As far as Shed. A, I don't think it's a proper medical expense to be considered there either. Code 213(d)(1)(D).
My guess is that since he took the deductions (I think improperly), the disability payments would be included in gross income. For instance, by analogy (always dangerous), under an employer-provided disability plan, if employee elects to pay premiums with pre-tax dollars: proceeds are taxable. Paid with after tax dollars: are excludable from gross income. Also, because his Scd. C business paid the premium, and took the deduction, I'd imagine it's subject to FICA as well. | |
| 29 June 2008 | |
| Premiums on overhead protection policies are deductible on Schedule C. Otherwise, there is no deduction allowed. If the policy is not an overhead protection policy, then the proceeds should be nontaxable. Section 104(a)(3). If 104(a)(3) applies, you should probably recommend amending the Schedule C to remove the deduction. | |
| 29 June 2008 | |
| As stated if the premiums paid were for a Bold textpersonal disability insurance policyBold textthen it is a non deductible item on Schedule C as it does not meet the business expense criteria in reg 1.162-1.Your client should consider amending Schedule C returns for the years involved.Do not include the amount received from the policy as income or pay social security (self employment taxes ) | |
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