Taxation of Disability Benefits

[Guest EagleEyes]

How are disability benefits taxed from a qualified DB plan - if paid from the plan?

Is the plan considered employer paid benefits?

And lastly, can the participant opt out of federal tax withholding?

[Guest Steve C]

EagleEyes,

I'm far from an expert here, but I believe that disability benefits from a DB plan are included in taxable income (except to the extent derived from employee contributions).

Among my other beliefs subject to question (setting aside Santa and the Easter Bunny...):

- disability benefits from an accident or health plan (IRC 105) might be excludible from income

- a DB plan *may* be able to provide tax-advantaged accident or health benefits through a 401(h) arrangement

I'll step aside here, hoping that I've provided incentive for others to step in and correct me.

[Everett Moreland]

If the DB plan is a governmental plan, see Byrne v. Commissioner, T.C. Memo. 2002-319 (2002).