If the employer is paying the premiums, the benefits received by the employee from an LTD claim are generally taxable to the employee. The employee will be taxed on the LTD benefits received when they make a claim. If the employee were paying the premiums themselves (through payroll deductions, for example), the LTD benefits they receive would typically be non-taxable. This is because they have already paid for the premiums with after-tax money.
Since your company is paying the majority of the premiums on behalf of your employee, it likely means that the employee’s LTD benefits, if they make a claim, will be taxable to them. The employee pays the tax on the benefits, but the fact that you are paying the premiums generally means that the LTD benefits are treated as taxable income for the employee when a claim is made.
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-HRInsider Staff
