Long-term disability (LTD) insurance provides you with income if you become disabled and are unable to work. Although your church may pay the full premium for this coverage, you can choose whether the premium is deducted from your pay before or after taxes.
Important tax considerations are as follows:
- If you choose to pay for the LTD premium with pre-tax dollars (as you may do for most other retirement benefits) and you become disabled, your LTD benefits will be subject to federal income tax.
- If you choose to pay for the LTD premium with after-tax dollars, you’ll pay more now. But if you become disabled, your LTD benefits will be exempt from federal income tax.
Under the U.S. Internal Revenue Code, some or all of your
disability income may be non-taxable because it can be
considered to be a housing allowance paid to a minister. Please contact your LTD provider to determine the housing eligibility.
Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.
This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.
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