Types of Disability Plans

• There are three types of disability coverages. Long-term disability (LTD) and short-term disability (STD), can be bought from insurance companies, while the Social Security Administration also sponsors a disability program. STD coverages range from several weeks up to 2 years and LTD coverage can last two years and up. The Social Security Disability program covers medical conditions that last longer than one year. Both LTD and STD coverages can be bought privately from insurance companies or through group plans sponsored by employers. Disability coverage from the SSA is provided to qualifying U.S. citizens.
  
  

Disability Payment Amounts

• Disability benefit amounts differ between the SSA disability program and the STD and LTD plans. Payments from the Social Security disability program are based on the applicants' work histories and how much they paid into Social Security. According to the Life and Health Insurance Foundation for Education, the average amount of Social Security disability payments is $1,063 per month as of 2010. STD and LTD plans replace a percentage of the insureds' salaries, typically 60 percent, according to SmartMoney.
  
  

Taxation of STD and LTD Payments

• Taxation of both short-term and long-term disability payments is determined by how the insurance premiums are paid. Disability coverages funded with before-tax dollars generally are taxed. For instance, members of group-sponsored disability plans have their premiums paid with earnings before they are taxed, so any benefit payments must be reported as income on tax forms. Privately owned disability plans are typically paid with after-tax dollars. Benefit payments from these types of plans are distributed tax-free.
  
  

Taxation of Social Security Disability Payments

• Social Security disability benefits are taxed by the IRS if the household income of the applicants exceeds the program's limits. For example, individual applicants whose combined earnings are greater than $25,000 will see their disability payments taxed. Disability benefits received by applicants who are married will be subject to taxation if the household income exceeds $32,000.