Disability insurance pays an employee a portion of their compensation if they’re unable to work due to illness or injury (such as giving birth or a prolonged illness).
If you offer medical insurance through Gusto, you can set up new disability insurance through Gusto.
If you offer disability insurance through a broker outside of Gusto (a third party), use this article to record the insurance policy, employee deductions, employer contributions, and any payouts. Then we’ll deduct employees for their portion of the premiums and take care of associated tax reporting and filings on your behalf.
Taxability: Company contributions are always pre-tax, and employee deductions can be either pre-tax or post-tax. Check out IRS Publication 15-A to learn more about the taxability of third-party disability insurance.
If you offer disability insurance through a third party, follow these steps to set up payroll deductions, report the company contribution, and designate which employees are enrolled.
On the next payroll you run, enrolled employees' paystubs will reflect the employee deductions and company contributions you entered, if applicable. If an employee takes a leave of absence due to an injury or illness that qualifies them to submit a claim to the insurance carrier, follow the steps below to record any payouts so Gusto can ensure the employee is taxed properly.
If an employee takes a leave of absence that qualifies them to receive payouts from your insurance carrier, you'll need to do three things in Gusto: record the dates of their leave, upload documentation of their payout, and send us an email from the Help section of your acccount.
1: Record the dates of an employee's leave
2: Report an employee's insurance payments during their leave
When your employee submits a claim and receives a payout, you'll receive a distribution report from the insurance company which describes the payments received and any taxes withheld. When you receive a distribution report, follow these steps to upload it to the employee's profile.
3: Email Gusto
In order for us to process this document, you'll need to send us an email from the Help section of your account after you've uploaded the document. We'll then review the payment amounts for you and ensure the employee is taxed properly for them.
Short Term Disability insurance is complex from a tax perspective. Employee taxes are often managed by the insurer while company taxes like Social Security and Medicare need to be paid by the employer. The specifics of the taxation will vary based on your plan document and the requirements specified by the insurer.
Please be aware that you may be required to file additional forms depending on your plan: