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Corporate Disability and Life Insurance When are disability premiums tax deductible and how does this effect the disability benefits ? C-Corporation can tax deduct the disability premiums but the benefits are taxable. Owners, highly compensated employees of an S-Corporation and Partners can not tax deduct their disability premiums, but the benefits are received tax-free. S-Corporations and Partners can tax deduct premiums paid for all other employees, and the benefits are taxed as ordinary income.   How much life insurance can an employer buy for an employee without the employee incurring taxable income? $50,000.