What Is STD and LTD on Your Paystub?

STD and LTD on your paystub refer to Short-Term Disability and Long-Term Disability insurance. These employee benefits provide income replacement if you become unable to work due to illness or injury. They serve as a financial safety net, covering a portion of your income when a medical condition prevents you from performing job duties.

Understanding Short-Term Disability

Short-Term Disability (STD) insurance offers income replacement for temporary periods when you cannot work due to a non-work-related illness or injury. STD plans typically replace 40% to 70% of your pre-disability earnings, with the exact percentage varying by policy.

Most STD plans provide coverage for 3 to 6 months, though some may extend up to a year. Before benefits begin, a waiting period (elimination period) applies, during which you must be continuously disabled. This period commonly ranges from 1 to 14 days. Employees often use accrued paid time off, such as sick days or vacation time, to cover income during this waiting period.

Common STD claims include recovery from surgery, certain illnesses, or maternity leave. For example, a normal pregnancy and delivery often qualify for about six weeks of STD benefits after the waiting period.

Understanding Long-Term Disability

Long-Term Disability (LTD) insurance provides income replacement for extended periods when a severe illness or injury prevents you from working. This coverage typically takes effect after short-term disability benefits are exhausted, serving as a continuation of income protection for more prolonged conditions. LTD policies commonly replace 50% to 60% of your pre-disability income, though some may offer up to 80%. The specific percentage is determined by the policy terms.

The benefit duration for LTD is significantly longer than STD, designed to provide support for years or even decades. Benefits can last for a set number of years, such as 2, 5, or 10 years, or until you reach a certain age, often 65 or 67. LTD policies include a waiting period before benefits are paid, which is usually longer than for STD. These waiting periods often range from 90 to 180 days, sometimes extending up to a year, and are frequently structured to begin when STD benefits end, ensuring a seamless transition of income.

LTD has a stricter definition of “disability” compared to STD. While STD might cover an inability to perform your current job, LTD policies often define disability as the inability to perform the duties of your “own occupation” for an initial period. This then transitions to an “any occupation” definition, meaning you cannot perform any job for which you are reasonably qualified by education, training, or experience. This ensures that LTD coverage is reserved for more severe and prolonged incapacities.

How Premiums Appear on Your Paystub

Deductions for STD and LTD on your paystub represent your contribution towards these insurance premiums. These payments maintain your coverage. The way these premiums are handled—whether pre-tax or post-tax deductions—has implications for your current taxable income.

A pre-tax deduction means the premium amount is subtracted from your gross income before taxes are calculated. This reduces your taxable income, leading to a lower immediate tax liability. Conversely, a post-tax deduction means the premium is taken from your net income, after taxes have already been withheld. In this scenario, the deduction does not reduce your current taxable income.

Employers may pay the full premium for disability coverage, or they may share the cost with employees. If your employer pays the entire premium and does not include that amount as taxable income on your W-2, then this cost may not appear as a direct deduction on your paystub. However, if you contribute to the premium, your portion will be itemized as a deduction. Some employers offer a “cafeteria plan” or similar arrangement, allowing employees to choose how their portion of the premium is paid, which influences the tax treatment of future benefits.

Taxation of Disability Payments

The taxability of disability benefits received from STD and LTD policies largely depends on how the insurance premiums were paid. The Internal Revenue Service (IRS) generally considers who paid the premiums and whether those payments were made with pre-tax or post-tax dollars.

If your employer paid 100% of the premiums for your disability insurance, and those premium payments were not included in your taxable income (i.e., paid with pre-tax dollars), then any disability benefits you receive are typically considered taxable income. Similarly, if you paid your premiums through a pre-tax payroll deduction, the benefits you receive would also generally be taxable. These benefits would be reported as income on your tax return, potentially increasing your tax liability.

Conversely, if you paid 100% of the disability insurance premiums yourself using post-tax dollars, the disability benefits you receive are generally tax-free. This is because the money used to pay the premiums has already been taxed, and the IRS views the benefit as a return of funds that were already subject to taxation. In situations where both you and your employer contributed to the premiums, or if premiums were paid with a mix of pre-tax and post-tax dollars, a portion of the benefits may be taxable based on the employer’s contribution or the pre-tax portion of your payments.