Lincoln Financial - 2025 Disability Benefits Taxation
The UC Disability Program offers both employer and employee-paid benefit plans. The tax implications on benefits from these plans depend on who pays the insurance premiums.
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Basic Disability – UC pays premiums. Benefits payments are generally taxable.
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Voluntary Short and Long-Term Disability – Employees pay premiums. Benefits payments are generally not taxable.
The Basic and Voluntary Short-Term Disability (VSTD) plans both provide benefits for a maximum of 6 months. When an employee is enrolled in both the VSTD and Basic disability plans, benefits from both plans are usually paid concurrently. Lincoln Financial Group (LFG) issues a single consolidated payment. Each year, LFG uses IRS guidelines to determine which portion of disability benefits is taxable. For 2025, 14.83% of disability payments will be subject to taxes when employees receive both Basic and VSTD benefits at the same time – a decrease from the 2024 percentage.
Taxability of Disability Benefits
Plan
2024
2025
Basic Disability only
100%
100%
Voluntary Short-Term Disability only
0%
0%
Basic and Voluntary Short-Term Disability (when combined into consolidated payments)
15.78%
14.83%
Voluntary Long-Term Disability only
0%
0%
Please direct employees to contact their LFG case manager by phone or email with questions about taxes withheld from their disability benefit payments.