How Much Do You Get Paid on Short Term Disability?

Short-term disability (STD) provides income replacement when a person is temporarily unable to work due to a non-work-related illness, injury, or medical condition. It helps cover essential living expenses during a period of absence from work. Understanding the financial aspects of STD benefits is important for anyone considering this coverage.

Calculating Your Short-Term Disability Payment

Short-term disability benefits are determined by several factors. They are most commonly calculated as a percentage of the individual’s gross weekly or monthly income earned before the disability, usually ranging from 40% to 70%. For instance, if an individual’s weekly income was $1,000 and their policy covers 60%, they would receive $600 per week.

Most plans include a maximum benefit limit, capping the weekly or monthly payout regardless of the calculated percentage of income. A waiting period, also known as an elimination period, is a set number of days (e.g., 7, 14, or 30 days) after the disability begins during which no benefits are paid. While some policies might pay immediately for accident-related injuries, most have a waiting period before payments commence.

The duration for which benefits are paid is limited, typically ranging from 3 to 6 months. Some policies may extend coverage up to 12 months. If other income sources, such as Workers’ Compensation or state disability benefits, overlap with the short-term disability period, the STD benefit amount might be reduced to prevent overpayment.

Who Pays Short-Term Disability Benefits

Short-term disability benefits can originate from various sources. Many employers offer STD as part of their employee benefits package, often funding the policy fully or sharing the cost with employees through a group insurance plan.

Individuals can also purchase private short-term disability insurance directly from an insurance company. This allows for more personalized coverage, though individual plans may have higher premiums and less broad coverage compared to group plans.

A few states have state-mandated disability insurance programs, sometimes called Temporary Disability Insurance (TDI) or State Disability Insurance (SDI). These programs, found in states like California, Hawaii, New Jersey, New York, and Rhode Island, provide benefits funded through employee payroll deductions. Eligibility and benefit calculations are defined by specific state laws.

Tax Implications of Short-Term Disability Payments

The taxability of short-term disability payments depends on who paid the premiums for the policy. If an employer pays the entire premium for the short-term disability policy, the benefits received by the employee are generally considered taxable income. This is because the employer’s premium payments are typically treated as untaxed income to the employee.

If an employee pays the entire premium for the policy using after-tax dollars, the benefits received are generally not subject to federal income tax. In situations where premiums are split between the employer and employee, the taxable portion of the benefit corresponds to the percentage of premiums paid by the employer. For example, if the employer paid half the premiums, then half of the received benefits might be taxable.

State-mandated disability benefits, such as those from SDI programs, may have varied tax treatments. Some states, like California, New Jersey, and Rhode Island, do not tax these benefits at the state level. Others, such as New York and Hawaii, may partially tax them depending on how premiums were contributed. Federally, if state disability income is received as a substitute for unemployment benefits, it may be federally taxable.

The Process for Receiving Short-Term Disability

Initiating a short-term disability claim begins with notifying the employer, usually the human resources department, or the insurance provider directly. This initial notification is a crucial step to start the process and obtain the necessary claim forms. Prompt action is advised to prevent processing delays.

The next step involves obtaining and submitting required documentation. This generally includes an application form completed by the claimant, along with a medical certification from a healthcare provider. The medical certification must detail the nature of the disability, its expected duration, and how it prevents the individual from performing their job duties. Wage information may also be required.

Once submitted, the insurer or plan administrator will review the claim and medical documentation to determine eligibility. Approval times can vary, ranging from a few days to several weeks. If approved, benefits are typically disbursed periodically, such as weekly or bi-weekly, often via direct deposit or check. Some plans may require ongoing medical updates or continued certification to ensure the individual remains eligible for benefits throughout the duration of the claim.