Is an income protection payout taxable in Australia?

Yes. A payment that replaces your salary and wages under an income protection policy must be included in your tax return, whether you receive regular payments or a lump sum (ATO, Income protection insurance, updated 8 June 2026). It is taxed as ordinary income at your marginal rate, and insurers generally withhold PAYG tax. Payments for personal injury or total and permanent disability are capital, not ordinary income, and are taxed differently.

How much does income protection pay per month?

Policies issued from 1 October 2021 pay at most 70% of your pre-disability earnings (some pay up to 90% for the first 6 months), under APRA's sustainability measures for income protection insurance. Older policies commonly pay 75%. The monthly benefit is your annual income x the benefit percentage / 12, capped at the insured monthly benefit in your policy schedule. For example, 70% of an $80,000 income is about $4,667 a month before tax.

When do income protection payments start?

After your waiting period — commonly 14, 30, 60 or 90 days from when you stop work and are certified unfit. Nothing is payable for the waiting period itself, and benefits are usually paid monthly in arrears, so the first payment typically lands about a month after the waiting period ends. If your time off is shorter than the waiting period, a standard policy pays nothing.

Is income protection through super different?

Yes, in three ways. You can't claim a personal tax deduction for premiums your super fund deducts from your contributions. The benefit must satisfy a superannuation condition of release (temporary incapacity) and is paid through the fund as an income stream, generally capped at your pre-disability earnings. And super-held policies often have narrower definitions and more offset clauses. The benefit is still taxed as ordinary income when it reaches you.

Is income protection taxed the same as a TPD payout?

No. Income protection benefits replace salary and are taxed as ordinary income at your marginal rate. A TPD lump sum paid from super is taxed under the superannuation lump sum rules instead — with a disability tax-free uplift, a maximum 22% rate on the taxable component under 60, and tax-free at 60 or over. If you are permanently unable to work you may be able to claim both.

Income Protection Payout Calculator

An honest estimate of your income protection benefit — monthly payout, when it starts, and what's left after tax. Every policy differs, so treat this as a sanity check against your PDS, not a quote.

Last verified: 20 July 2026

Pre-disability annual income (before tax)*

What you were earning before you stopped work — insurers assess the benefit against this.

Policy benefit percentage*

70% is the standard for policies issued from October 2021 (APRA rules). Older policies commonly pay 75%. Check your policy schedule.

Monthly benefit cap, if your policy has one

Leave at $0 if you don't know. Your policy schedule lists the insured monthly benefit.

Waiting period*

The unpaid period at the start of a claim. 30 or 90 days are the most common.

Expected time off work*

weeks

Total time off, including the waiting period. Benefits only accrue after the waiting period ends.

How are the premiums paid?

I pay them personally

Premiums are tax-deductible (income protection portion only)

Through my super fund

No personal deduction; benefit paid via the fund with extra conditions

Are you also expecting workers comp or other insurance payments?

No other payments expected

Yes

Check your policy's offset clause — your real benefit may be lower

Many policies reduce your benefit dollar-for-dollar for workers compensation, motor accident or other income protection payments — we'll flag it, not calculate it.

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General information and estimates only — not legal, financial or tax advice. Always check your specific award, agreement or contract, or a qualified professional, before you rely on the result.

Income Protection Payout Calculator

The figure is the easy part.

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