Disability Benefit Calculator
See what a disability policy actually replaces after the monthly cap and tax, which depends on who paid the premium.
This is the general US rule and there are wrinkles: split-premium arrangements are taxed proportionally, and paying your share with pre-tax payroll dollars counts as employer-paid for this purpose. Policies also differ on whether "salary" includes bonus and commission. Check the policy document; nothing here is tax advice. Nothing is uploaded.
Who pays the premium decides whether it is taxed
The rule is counter-intuitive and it is the whole finding. If your employer pays the premium, the benefit is taxable income. If you pay it yourself with money that has already been taxed, the benefit arrives tax-free. So the identical policy, quoted identically at 60% of salary, replaces 60% or 45.6% depending on a line in the paperwork.
| Salary | Employer pays the premium | You pay it, after tax | |
|---|---|---|---|
| $60,000 | $2,280/mo — 45.6% | $3,000/mo — 60.0% | |
| $80,000 | $3,040/mo — 45.6% | $4,000/mo — 60.0% | |
| $150,000 | $5,700/mo — 45.6% | $7,500/mo — 60.0% | |
| $200,000 | $7,600/mo — 45.6% | $10,000/mo — 60.0% | |
| $250,000 | $7,600/mo — 36.5% | $10,000/mo — 48.0% | cap binds |
| $400,000 | $7,600/mo — 22.8% | $10,000/mo — 30.0% | cap binds |
Which inverts the usual instinct. The employer-paid policy feels like the free one, and it is the one that pays you less — by exactly your marginal rate, which here makes the self-paid benefit worth about a third more for the same headline number. If your employer offers the option to pay the premium yourself, that is what the choice is actually about, and it is worth far more than the premium costs.
Above $200,000, the percentage stops meaning anything
Almost every policy caps the monthly payment. At a $10,000 cap, 60% of salary
stops being achievable above $200,000 — that figure is just the
cap times twelve, divided by the percentage. Beyond it the monthly cheque does not move at
all, so the effective replacement rate falls with every raise: at $400,000 the
quoted 60% is really 30.0%, and
22.8% once tax is taken.
That is why a percentage is the wrong thing to shop on above a certain income. The number
that matters is the monthly figure and the cap that limits it — and a second policy bought
privately is the usual way to cover the part the first one cannot reach, which is a
conversation worth having before a raise rather than after one.
How to use
- Enter your salary and the benefit percentage quoted.
- Add the monthly cap and your marginal tax rate.
- Say whether you or your employer pays the premium.
- Read what actually lands each month.
Frequently asked questions
Is a disability benefit taxable?
It depends on who paid the premium, and the rule is counter-intuitive. If your employer paid, the benefit is taxable income. If you paid it yourself with money already taxed, it arrives tax-free. So the identical policy quoted at 60% of salary replaces 60% or 45.6% depending on a line in the paperwork.
Is employer-paid cover the better deal?
Usually not, and it is the one that feels free. Making the benefit taxable costs about a third of it at a 24% marginal rate, so a self-paid policy is worth roughly a third more for the same headline number. If your employer offers the option to pay the premium yourself, that is what the choice is really about.
Why is my benefit less than the percentage quoted?
Two reasons stack. Tax, if the premium was employer-paid. And the monthly cap, which almost every policy has — at a $10,000 cap, 60% of salary stops being achievable above $200,000 of income, and beyond that the effective rate falls with every raise while the cheque itself does not move.
Where does the cap start to bite?
At the cap times twelve, divided by the percentage. A $10,000 monthly cap on a 60% policy binds from $200,000 of salary upward. Below that it does nothing at all; above it, the percentage stops being a meaningful thing to shop on.
What replacement rate should I aim for?
Enough to cover fixed obligations rather than your whole salary, since some costs fall if you stop working and taxes may too. The useful move is to work from the monthly figure the policy would actually pay — which is what this calculates — rather than from a percentage.
Can I top up an employer policy?
A second policy bought privately is the usual way to cover what the first one cannot reach, and because you pay its premium yourself, that portion of the benefit arrives tax-free. It is worth arranging before a raise rather than after one.
Are there exceptions to the tax rule?
Several. Split-premium arrangements are taxed proportionally, and paying your share through pre-tax payroll deduction counts as employer-paid for this purpose. Policies also differ on whether salary includes bonus and commission. Check the policy document — nothing here is tax advice.
Does this send anything anywhere?
No. Every figure is computed in your browser, and nothing is uploaded or stored.
🔒 This tool runs entirely in your browser. Nothing you enter is uploaded, logged, or stored.