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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7149
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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I live in California. I worked local government who paid LTD

Customer Question

I live in California. I worked for a local government who paid LTD premium which entitled me to 50% of wages. I paid additional premium so I would receive additional 10% to equal 60% of wages. I went off work and after exhausting all sick, comp, bank, and vacation time was placed on unpaid leave of absence. I therefore took over the entire premium. After my disability claim was denied 3 times, even after my employer initiated my disability retirement with CalPERS on my behalf I stopped paying premiums. I'm currently suing the insurance company but need to know if a settlement is taxable and if it is what portion?
Submitted: 1 year ago.
Category: Tax
Expert:  Stephen G. replied 1 year ago.

It would depend upon the nature of any award that you may receive.

Naturally, normally there would have to be an allocation between the total premiums you paid verses the total premiums the company paid and then that ratio would determine how much of the award would be taxable to you.

However, if the award is in your favor & is based upon the Company's failure to perform under the contract, then the award may not be subject to tax at all. Most disability polices pay until normal retirement age or 65/66 depending upon when the policy was taken out, so the amount that you may be entitled to under the contract is determinable. Any penalty assessed to the Insurance Company & paid to you, may not be taxable at all. It really depends upon how any settlement is structured.