What Box on T4 Is Disability Insurance Premiums Claimed In?
Tax season arrives, and many Ontarians find themselves staring at their T4 slips, unsure of what to make of the rows of numbers and box codes. A common question is: What box on T4 is disability insurance premiums claimed in?
To make informed decisions about potential tax implications on benefits received, you have to know where to look and how to interpret the information on your T4 Statement of Remuneration Paid, as provided by the Canada Revenue Agency (CRA).
Disability Insurance & Your T4 Slip
A T4 slip is a tax document that employers provide to show how much you earned and the deductions made throughout the tax year. When it comes to disability insurance, the key consideration is whether the premiums were employer-paid or employee-paid, as this affects the tax status of the disability benefits received.
Decoding Your T4 Slip: Where Are Disability Insurance Premiums Reported?
There’s no single box on a T4 slip specifically dedicated to disability insurance premiums. Instead, these premiums often show up in various places, depending on how your insurance premiums are structured and who pays for them:
- Box 14: Employment Income—If your employer pays the disability insurance premiums, the value of these premiums might be hidden in your total employment income. It can inflate your income figure, impacting your taxable status without being explicitly stated.
- Box 40: Other Taxable Allowances and Benefits—When disability insurance is treated as a taxable benefit, the premiums paid by your employer might show up here. This is where the CRA expects to see taxable benefits, ranging from insurance premiums to other allowances, that affect your employee’s income.
- Box 85: Employee-Paid Premiums for Private Health Services Plans—This applies when you, as an employee, pay disability insurance premiums as part of a wage loss replacement plan. These amounts might appear here if they are part of a broader health benefits package. However, not all disability insurance premiums make it into Box 85, which can create confusion at tax time.
Who Pays the Premiums? Why It Matters
The tax implications depend on whether the premiums are paid by the employer or the employee.
Employer-Paid Premiums
When an employer foots the bill for disability insurance, the premiums are usually considered a taxable benefit. This means:
- Your T4 slip might show these premiums under Box 40, bumping up your taxable income.
- Any disability benefits received under this employer-paid plan are generally subject to tax, reducing the net amount you receive during a disability.
- You’ll likely see the impact of this on your tax return, potentially changing how much income tax you owe.
There’s a trade-off. While employer-paid premiums mean no upfront cost to you, it can lead to taxable disability benefits, which might hurt when your income drops due to disability.
Employee-Paid Premiums
If you pay your own disability insurance premiums with after-tax dollars, the situation changes. The premiums are not tax-deductible, but this setup provides a significant advantage—any disability benefits you receive are tax-free. This could make a world of difference if you rely on these benefits for an extended period.
On your T4 slip, this might show up in Box 85 if the premiums are part of a private health services plan. But often, these premiums aren’t listed explicitly, leaving many to wonder where they stand come tax time.
Short-Term vs. Long-Term Disability Insurance Tax Implications
The tax implications can also differ depending on whether your disability insurance is short-term or long-term:
- Short-Term Disability (STD): Benefits are typically paid through employer payroll and may be included in your T4 slip under employment income if the employer pays the premiums.
- Long-Term Disability (LTD): Benefits are often paid directly by the insurer and might not appear on your T4 slip, but they are still taxable if employer premiums were involved.
In both scenarios, whether benefits are tax-free or taxable depends on who paid the premiums and how contributions were managed.
How Whitten & Lublin Can Help You Take Control
Knowing what box on T4 is disability insurance premiums claimed in isn’t just about avoiding tax errors—it’s about preparing for life’s uncertainties with confidence. We understand that the tax implications of disability insurance premiums can be confusing; many employees worry about how their long-term disability benefits will impact their annual income tax returns, however, tax-related questions should always be directed to a qualified accountant or tax professional who can provide the right guidance for your situation.
What we focus on at Whitten & Lublin is making sure that your workplace rights are respected, and that you are treated fairly. If you are struggling with disability insurance claims, facing employment disputes, or need legal support to manage workplace challenges, our Toronto employment lawyers are here to help.
Take control with Whitten & Lublin in your corner. Call 416 640 2667 or contact us online to schedule a consultation.