Is long-term disability insurance tax-deductible if I am self-employed?

Find out if long-term disability insurance is tax-deductible if you are self-employed and how it may impact your income.

Marcel Deer - Writer for NEXT Insurance
By Marcel Deer
Kelly Hendrickse - editor for NEXT Insurance
Edited by Kelly Hendrickse
Matt Crawford for NEXT Insurance
Fact-check by Matt Crawford

Updated May 30, 2023.

Disability insurance is typically not tax-deductible because the Internal Revenue Service (IRS) views these benefits as a form of income, not an expense.

Other reasons why disability insurance is not tax-deductible:

  • You are taxed on all business income, so if your sole income is from your disability benefits, this gets taxed first.
  • You pay for this insurance with after-tax dollars, meaning your insurance payments come off after your income has already been taxed.
  • The insurance benefits are received tax-free.

But there are some exceptions. It's important to speak with a licensed tax professional who can help you with your specific situation.

Depending on your terms of insurance, you may be able to deduct certain medical, dental and vision expenses from your taxes. In total, if these expenses can make up more than 7.5% of your adjusted gross income (AGI), you can itemize your deductions and may qualify for tax benefits.

And if you have substantial medical expenses not covered by your insurance, it can be worthwhile to itemize these as they may be eligible for deductions.

» Learn how workers' compensation insurance and disability insurance differ

Deductible or not, disability insurance can help

Long-term disabilities and illnesses are difficult enough without having to worry about medical bills too. So, even though your disability insurance may not be tax-deductible, it can give you peace of mind and help with financial support. If you have significant medical expenses, then you might want to opt for itemized deductions to avoid any unnecessary losses.

And if you have workers' compensation insurance, you may be able to receive further financial support. That's where NEXT comes in. We offer custom insurance options that are affordable and tailored to your needs. It's an easy and instant process, all done online.

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