Hi everyone, I’m currently receiving long-term disability benefits and noticed that the amount I’m actually getting is quite a bit lower than expected. I understand that LTD benefits are taxable, but it looks like the insurer didn’t take my submitted tax forms into account and did not calculating deductions.
They seem to have defaulted to a much higher withholding rate, and as a result, I’m losing a substantial amount of money each month—money I really need right now. Has anyone else experienced this? Were you able to correct it by submitting updated TD1 forms or requesting a reassessment?
To my knowledge, insurers follow Revenue Canada’s guidance on withholding rates which are as follows: 10% on amounts $5000 or less; 20% on amounts between $5000-15,000; and 30% on amounts higher than $15,000. So the insurer would look at your annual benefit amount and base the withholding percentage on that. This is why they are likely using the 30% withholding for you. The insurers do this because under the tax act they can be liable if – they don’t deduct enough, and you don’t pay the taxes. SO they don’t take any changes and just default to the 30% figure in most situations. You will get the money back when you file your taxes, but I appreciate that doesn’t help with paying monthly bills. I recommend calling your insurer to see if they will make an exception for you.
David Brannen
Disability Lawyer with Resolute Legal
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