Have a Tax Question? Ask a Tax Expert
Hi and welcome to Just Answer!The full settlement amount that will be received in the current tax year is included into your taxable income - and will be reported to you and to the IRS as taxable income - assuming that disability insurance premiums were paid by your employer only.If premiums were paid by you - none of the settlement amount is taxable.Whatever was paid in previous tax years should be included in those years’ tax returns - and will not be considered. However - because you had legal expenses and attorney's fees - and these expenses were associated with taxable income - you may deduct them.Your tax liability will be based on your total adjusted gross income minus all allowable deduction. The tax rate determined according your filing status and total taxable income.
I was injured 12 years ago and I am assuming I paid the premiums myself. How do I know? The disability amount shows up on W2 as 3rd party sick pay.
If premiums were fully paid by you with after tax funds - none should be taxable.If that is correct - you to contact the payer and ask to correct W2 form.Please let me some time - I will provide you reference that you may base your request.
Sorry, but I don't understand. On my W2s from the LTD company, I have $461 as wages. I have $14936 as third party sick pay, marked as non-taxable. Would the settlement follow this monetary division between taxable and non-taxable?
See IRS publication 525 - page 17 - http://www.irs.gov/pub/irs-pdf/p525.pdf
Disability Pensions. If you retired on disability, you must include in income any disability pension you receive under a plan that is paid for by your employer.See also on the same page :Cost paid by you. If you pay the entire cost of an accident or health plan, do not include any amounts you receive from the plan for personal injury or sickness as income on your tax return.
The settlement DOES not follow this monetary division between taxable and non-taxable - but is based on what items that settlement replaces. That will be based on your settlement document.
I didn't retire. I was injured on the job and have been on SSDI and LTD since 2000. Pension does not apply. I just remember as opting for LTD benefits and they took money out of my check).
To determine if settlement amounts you receive by compromise or judgment must be included in your income, you must consider the item that the settlement replaces.Most likley - you are correct - but you need to contact teh payer and verify that they will follow this monetary division.
Settlement replaces the remaining 12 years of what should have been LTD benefits until I reach the age of 65, or market value.
The settlement DOES not follow this monetary division between taxable and non-taxable - but is based on what items that settlement replaces. That will be based on your settlement document.If your settlement document states that this monetary division between
The payer will report the settlement amount to you and to the IRS on the form 1099MISC - that you will receive in January 2013. To avoid issues - you need to contact them now - and provide the information about proportion of taxable and not taxable part. So you will avoid situation when nontaxable part of your settlement will be reported as taxable.
But - again - if that amount is taxable or not - is based on who paid premiums.
I need to contact who now? The LTD company or the IRS?
Contact the LTD Company which paid you - the payer will report your taxable income to the IRS. You will need only contact the IRS if they report incorrectly.So far - there is no reporting before January 2013 - so you may prevent incorrect reporting and verify that now.
Let me know if you need any help.