As we move toward income tax season, one question we frequently hear is whether critical illness benefits are taxable. While we always recommend contacting a tax consultant for any individual situation, here's a high-level overview.


Taxation of lump-sum critical illness benefits

Any critical illness benefits totaling more than the costs incurred for medical care are generally taxable if the employee or employer paid the premium on a pre-tax basis.

It is also important to note that critical illness benefits may affect eligibility for public assistance like federal, state or local welfare programs.

This is a high-level overview of the taxation of critical illness benefits. For specific information, please consult a tax professional and/or your benefits representative.