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Tax.appeal.168, Tax Accountant
Category: Tax
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Experience:  3+ decades of varied tax industry exp. Tax Biz owner
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I receive a monthly income from a private term disability

Customer Question

I receive a monthly income from a private long term disability insurance company. They are offering me a lump sum payment in exchange for release of liability. Is it possible to spread a lump sum over several years in terms of tax liability?
Submitted: 1 year ago.
Category: Tax
Expert:  Tax.appeal.168 replied 1 year ago.

Q: it possible to spread a lump sum over several years in terms of tax liability?

A: Unfortunately the answer is no. You will be taxed on the lump sum amount in the year that it is received. SEE BELOW:

3. Taxes

Considering the tax implications of your lump sum settlement is also important. Whether you are required to pay taxes on your long term disability benefits is based largely on who paid for the insurance premium. If you paid for the premium with “after tax dollars” then the long term disability benefits are generally tax-free. If your employer paid for the insurance premium or you paid for it with “pre-tax dollars” then the benefit is generally taxable at regular income tax rates. If your benefits are taxable, receiving a lump sum settlement may lead to negative tax consequences, as it would be taxed at a higher rate than if you received the benefit over time. Structuring your settlement to consider the tax consequences is important.


Let me know if I can be of further assistance to you regarding this matter.

Expert:  Tax.appeal.168 replied 1 year ago.

I just became aware that from 1/27 - 1/31, there might have been a technical issue that wouldn't allow you to respond or rate my answer when I answered your question. Let me know if you require further information regarding this matter and if you attempted to respond or rate and was unable to. If there was a technical issue, please tell me what the issue was so that I can report it.