Is Long-Term Disability Income Taxable?

Published: May 5, 2022 | Last Reviewed: October 14, 2026

Key Takeaways

• Whether LTD benefits are taxed depends on who paid the insurance premiums: if the employer paid all or part of the premiums, benefits are generally taxable when received; if the employee paid the full premium with after-tax dollars, the benefits are generally not taxed.
• CPP disability benefits are taxable and reported as part of the taxable CPP benefits shown in box 20 of a T4A(P) slip, while ODSP benefits are not taxable, although they may still need to be reported on your tax return.
• Your insurance carrier will generally determine whether your LTD benefits are taxable and, when required, withhold tax from your payments.
• Private LTD policies typically replace a portion of your pre-disability income, so whether those benefits are taxable can make a meaningful difference to the amount you ultimately receive.

Long-term disability income may be taxable in Canada, depending on the source of the benefits and who paid the insurance premiums. If your employer paid all or part of the premiums for your long-term disability insurance, benefits you receive are generally subject to income tax. If you paid the full cost of the premiums yourself using after-tax income, your benefits are generally tax-free.

Different rules apply to government disability programs. Canada Pension Plan (CPP) disability benefits are taxable, while Ontario Disability Support Program (ODSP) benefits are not taxable.

Because the rules vary depending on where your disability income comes from, it is important to look at each type of benefit separately.

For more information or answers regarding your specific circumstances, you should contact a knowledgeable Ontario tax professional. If your benefits were delayed or denied, a Toronto long-term disability lawyer can help you respond while you sort out the financial impact.

Are Long-Term Disability Benefits Taxable?

Long-term disability insurance provides income replacement when an illness or injury prevents a covered person from working. The amount paid depends on the terms of the individual policy. Disability insurance will often replace a percentage of the income a person earned before becoming disabled.

For private long-term disability insurance, one of the most important factors in determining whether the payments are taxable is who paid the insurance premiums.

Generally:

• If your employer paid all or part of the premiums: your LTD benefits are generally taxable.
• If you paid all of the premiums yourself with after-tax dollars: your LTD benefits are generally tax-free.

This distinction can significantly affect the amount of money available to you while you are unable to work.

When Long-Term Disability Benefits Are Taxable: Employer-Paid Premiums

If your employer pays all or part of the premiums for a long-term disability insurance plan, the benefits you later receive under that plan are generally subject to income tax.

There is a trade-off involved. You generally do not pay tax simply because your employer pays premiums to cover you under a qualifying group long-term disability plan. However, if you later become disabled and begin receiving benefits from a plan to which your employer contributed, those benefit payments may be taxable.

The Financial Consumer Agency of Canada similarly explains that disability benefits are generally subject to income tax when an employer pays all or part of the disability insurance premium.

If both you and your employer contributed toward the cost of your coverage, the tax treatment can depend on the structure of the plan and the contributions that were made.  It is possible that some of the benefit will be taxed while the employee portion will not be subject to tax.

When Long-Term Disability Benefits Are Not Taxable: Employee-Paid Premiums

If you paid the entire cost of your long-term disability insurance premiums yourself, using income on which you had already paid tax, the benefits you later receive are generally tax-free.

In other words, you do not receive an income-tax deduction simply for paying your own disability insurance premiums. The benefit comes later: if you become disabled and qualify for benefits under the policy, those payments are generally not included in your taxable income.

This can make an important difference to your take-home income during a long-term disability.

How Do I Know if My LTD Benefits Are Taxable?

You generally do not need to determine the tax treatment of your LTD payments on your own.

When your claim is approved, your insurance carrier should be able to tell you whether the benefits payable under your policy are taxable. Where applicable, the insurer may also withhold income tax from the payments it issues.

If you are unsure, review your benefits documentation or speak with your insurer, employer or a tax professional. The specific wording and funding arrangement of your insurance plan can affect how your benefits are treated.

Do I Have to Report Long-Term Disability on My Taxes?

Whether you have to report long-term disability benefits on your income tax return depends primarily on whether those benefits are taxable.

If your employer paid all or part of the premiums for your long-term disability coverage, benefits received under the plan are generally taxable and should be treated accordingly when you file your return.

If you paid the full cost of the premiums yourself with after-tax dollars, your private LTD benefits are generally not taxable.

In addition to private Long-Term disability insurance, there are other common types of disability claims available to disabled people in Canada. Government disability programs have their own tax rules, including CPP disability and ODSP benefits, which are discussed below.

Are CPP Disability Benefits Taxable?

Yes. Canada Pension Plan disability benefits are taxable income.

CPP disability benefits may be available to people who:

• Are under the age of 65;
• Have a severe and prolonged disability that regularly prevents them from doing substantially gainful work; and
• Have made sufficient contributions to the CPP.

CPP recipients receive a T4A(P) Statement of Canada Pension Plan Benefits. Taxable CPP benefits are shown in box 20 and reported as CPP or QPP benefits on the income tax return.

You can also request that income tax be deducted from your CPP payments during the year rather than potentially owing tax when you file your return.

Are ODSP Benefits Taxable?

No. Ontario Disability Support Program benefits are not taxable.

ODSP provides income and employment supports to eligible Ontario residents with disabilities. Eligibility depends on factors including age, Ontario residency, financial need and disability-related requirements.

Although ODSP social-assistance payments are not taxable, recipients may receive a T5007 Statement of Benefits.

Social-assistance payments reported in box 11 of a T5007 are generally entered on line 14500 of the federal income tax return. An equivalent deduction is then claimed on line 25000, meaning the amount is included when calculating net income but is not included in taxable income.

This reporting treatment can still affect the calculation of certain income-tested benefits and credits even though the ODSP payments themselves are not taxable.

Private LTD, CPP Disability and ODSP: Tax Treatment at a Glance

Type of Disability Benefit	Generally Taxable?	Key Consideration
Private LTD where employer paid all or part of premiums	Yes	Benefits are generally subject to income tax
Private LTD where employee paid all premiums with after-tax income	No	Benefits are generally tax-free
CPP disability benefits	Yes	Taxable CPP benefits are reported on a T4A(P)
ODSP benefits	No	Benefits may still need to be reported on a T5007 and tax return

What if My Long-Term Disability Benefits Are Denied?

Questions about how disability benefits are taxed are different from disputes over whether an insurance company should pay those benefits in the first place.

If you need advice about your individual tax situation, consider speaking with a qualified tax professional.

However, if your long-term disability insurance claim has been delayed, denied or terminated, a long-term disability lawyer may be able to help you understand the insurer’s decision and the options available to challenge it. For a deeper look at that process, download our free guide, which explains what to do if your LTD benefits have been denied.

Speak With a Long-Term Disability Lawyer

There are many different types of disability claims, but they all share one thing in common: losing your ability to work due to illness or injury creates significant financial uncertainty. Understanding whether your disability benefits will be taxed is one part of determining how much income you’ll actually have while you’re unable to work.

If your long-term disability claim has been denied or your insurer has stopped paying benefits you believe you are entitled to receive, Preszler Injury Lawyers may be able to help.

Contact us at 1-888-608-2111 today to schedule a free initial consultation and learn more about your legal options.

We’re here to help.