Do I have to make an Estimated Tax Payment for 2009?
Assuming that you paid for the disability insurance coverage with tax paid dollars, the settlement from them is not taxable. If your employer paid for the coverage or if you paid for it with pre-tax dollars then it would be fully taxable to you. That’s an unusual situation though. I have yet to see an employer-paid disability policy or one that is paid with pre-tax dollars. It’s virtually always paid by the employee with tax paid dollars exactly for this reason, to preserve the tax free status of the benefits. If these are the facts in your case there is no need to make estimated tax payments.
