Are There New IRS Regulations Impacting the Taxability of LTD Settlements?

Asked in Dallas, TX - almost 3 years

I have been offered a lump sum settlement from my LTD insurer. Currently, I have been told that the settlement would be taxable since: 1. There is no tort involved. 2. My employer paid 100% of the premiums. I just read, however, that this February 2010, the Treasury conducted a hearing on proposed regulations to section 104 of the Tax Code that would eliminate the requirement that damages be based on “tort or tort type rights” in order to qualify for the section 104(a)(2) tax exclusion. Would these proposed changes mean that LTD settlements involving a physical sickness or injury (with no tort) would also be tax exempt? And, because my employer paid all the premiums, is it certain that the settlement would be taxable?