re: Underpayment penalty on taxes......Paging Poodle...please see last post

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Will Your Disability Benefits Be Taxable?
Both short- and long-term disability benefits are taxable to varying degrees, depending on the type of policy. Here are the rules under current law:

Your short-term disability benefits are taxable or tax-free depending upon how the plan premiums are paid. States with statutory short-term disability plans have special rules.
The portion of LTD benefits you receive that is paid by an employer is taxable to you. Federal, state, and local taxes are withheld; Social Security and unemployment taxes are excluded.
The portion of LTD benefits you receive that is paid by you is tax-free, except if you pay with pre-tax dollars.

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However, short-term disability payments received under an insurance policy are not exempt, though you may not be liable for additional taxes on such payments if you have already borne the cost of taxation through the structure of the plan.

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Disability income is taxable when your employer has paid the premiums and the premiums have been excluded from your earnings. As a general rule, an employer generally excludes disability premiums from an employee's earnings.

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