I received a long term disability settlement from Met life for $29,600. The W2 they sent is checked off as "third party sick pay". Do I need to report this as income to the IRS? (Is it taxable). Also, since it's over the $16,000 max allowed annual income while collecting SSD, will I be penalized for going over the $16,000 by $13,600 or is LTD money different than money earned from a job?
Third party sick pay is a kind of income replacement, so Yes, it is taxable. As for the impact that this income will have on your SSDI benefits, you will have to inquire with Social Security to find out.
Ms. Willi is a tax attorney, CPA, and Ohio-Certified Specialist in Estate Planning, Trust & Probate Law, with offices in Westerville, Ohio. She serves client families and private business owners throughout Ohio. Ms. Willi responds to Avvo questions as a public service to help educate and provide general guidance to questioners, but her responses are not legal advice and do not create an attorney-client relationship. Her posts are provided for informational purposes only and are not a substitute for advice provided by an attorney or licensed tax professional. Her phone number is 614-890-0500 and her website is www.willilaw.com.
LTD money is different than money earned from a job, and does not affect your SSDI. Typically it is actually the other way around, where your LTD policy will want to reduce your amount by the amount you are already getting in SSDI.
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