[UCRDBR] Disability Benefits Taxation for 2021

[Departmental Benefits Representatives]

[cid:image002.png at 01D7253B.346FCF80]

March 30, 2021
To:
Department Benefits Representatives (DBRs)
From:
HR Benefits Office
Re:
Disability Benefits Taxation for 2021
The UC Disability Program offers both employer and employee-paid benefit plans. Whether or not benefits paid from these plans are subject to income tax depends on who pays the insurance premiums. For example:

   *         Basic Disability - UC pays the premiums and benefits are generally taxable

   *         Voluntary Short and Long-Term Disability - Employees pay the premiums and benefits are generally not taxable

Both the Basic and Voluntary Short-Term Disability (VSTD) plans provide benefits for a maximum of 6 months and are usually paid concurrently when an employee is enrolled in VSTD. When this happens, Lincoln Financial Group (LFG) consolidates payments from both plans into one check, yet only the Basic Disability portion of the benefit is taxable.

Each year LFG follows IRS guidelines to establish a standard taxable percentage for these consolidated payments based on the premium split. The percentage for 2021 is 17.77% which is a reduction from 2020.

Employees may contact their Lincoln Financial Group case manager by phone or e-mail with questions about taxation of their disability benefit payments.
Taxability of Disability Benefits*

Plan Year
2018
2019
2020
2021

Basic Short-Term Disability only
100%
100%
100%
100%

Voluntary Short-Term Disability (concurrent with Basic)
18.93%
18.71%
18.34%
17.77%

Voluntary Long-Term Disability
0.00%
0.00%
0.00%
0.00%


*    The disability taxation information contained herein supersedes any previous information.


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