New York Voluntary Disability Benefits: Applying, Lapses, and Tax Rules

If your business or your own self-employment falls outside New York’s mandatory short-term disability requirement, you can still apply for coverage. New York voluntary disability benefits are available under Section 212 of the Workers’ Compensation Law to sole proprietors, self-employed people, farm employers, public entities, and employers of workers who are excluded from the standard definition of “employee.” Once the Chair of the Workers’ Compensation Board approves the application, the employer provides the same statutory benefits as any mandated employer: 50 percent of average weekly wage, capped at $170 per week in 2026, for up to 26 weeks within a 52-week period.¹

Who Can Opt In

Section 212 is open to any employer that isn’t already required to provide disability or Paid Family Leave benefits. The statute specifically reaches:

Sole proprietors, members of LLCs and LLPs, and other self-employed individuals, who aren’t “employees” of their own businesses and so have no mandatory coverage.
Public authorities, municipal corporations, fire districts, and other political subdivisions, which sit outside the standard definition of covered employment.
Farm labor employers, whose work is carved out of the mandatory framework but can be brought under it voluntarily.
Employers of workers excluded by Section 201, including ordained clergy and members of religious orders, executive officers who own all of a corporation’s stock and hold all its offices, people working in a professional or teaching capacity for a nonprofit or religious institution, and volunteers at charitable organizations.
Employers of domestic workers who work fewer than 20 hours per week for them, below the threshold that triggers mandatory coverage.

Once the Chair approves the application, the employer is treated as if coverage were required by law.²

What You Agree to Provide

Voluntary coverage is not a lighter version of the standard program. Workers receive 50 percent of their average weekly wage, up to the $170 weekly maximum in 2026. Benefits cover off-the-job injuries and illnesses only; anything arising from work falls under workers’ compensation.³ A seven-day unpaid waiting period runs before payments start, and benefits last a maximum of 26 weeks in any 52-week period.⁴ Combined disability leave and Paid Family Leave cannot exceed 26 weeks in that same window.

Since January 2018, any employer that provides disability benefits must also provide Paid Family Leave. The two programs travel together. An employer opting into disability coverage is simultaneously opting into PFL obligations, and the application forms cover both.⁵

How to Apply

The Workers’ Compensation Board uses two application forms, and the choice depends on who pays. Form DB-135 is for employers who will absorb the full premium with no payroll deductions. Form DB-136 is for employers who want employees to contribute toward the premium.⁶ Both are posted on the Board’s employer forms page.⁷

Choosing Form DB-136 adds a step. More than half of the affected employees must consent to contribute, and that consent has to be documented to the Chair’s satisfaction before approval is granted.²

Both forms require the employer’s Federal Employer Identification Number and the legal business name exactly as registered. The form also asks the employer to identify the class of employees being covered and how benefits will be provided. The completed application goes to the Chair of the Workers’ Compensation Board. In parallel, the employer secures a policy with a licensed insurance carrier, which files proof of coverage (Form DB-820/829) with the Board.⁸ Coverage takes effect only once the Chair approves the application, so confirm the approval date with the Board rather than assuming a timeline.

Ways to Secure the Policy

Section 211 lays out the same menu for voluntary employers that mandatory ones use:

The New York State Insurance Fund, the state-run insurer open to any employer and often the simplest route for small businesses and sole proprietors.
A private stock, mutual, or reciprocal insurer authorized to write accident and health insurance in New York.
Self-insurance, which requires proving financial ability to the Chair and posting a security deposit. Realistic only for larger, well-capitalized employers.
A negotiated plan providing benefits at least as favorable as the statutory minimums, with employee contributions capped at the statutory amount unless employees agree otherwise.

Most small employers and sole proprietors opting in will use NYSIF or a private carrier.⁹

What Happens If Coverage Lapses

After approval, every standard requirement applies: keep the policy active, pay premiums on time, follow reporting rules.² A lapse triggers the same penalties any uninsured employer faces. The Board can impose a penalty of up to half of one percent of payroll during the gap, plus a fine of up to $500 per period of noncompliance. Operating without coverage is a misdemeanor carrying fines of $100 to $500, up to a year in jail, or both, with repeat violations within five years drawing significantly higher fines. The employer is also personally liable for any disability or PFL claims the state’s Special Fund pays during the lapse, or one percent of payroll during the noncompliance period, whichever is larger.¹⁰ Opting in is a legal commitment, not a trial subscription.

Canceling Voluntary Coverage

You can’t simply stop paying premiums. The statute requires coverage to stay in place for at least one year before cancellation is even possible. After that, the employer must give 90 days’ written notice to the Chair and to all affected employees, and the Chair must approve the employer’s plan for handling obligations incurred before the termination date.² The regulation at 12 NYCRR 380-10.2 requires the cancellation notice to be submitted in the format the Chair prescribes.¹¹ Letting a policy quietly expire puts the employer in the same position as any uninsured business, with the penalties described above.

Who Pays the Premium Decides the Tax Treatment

The IRS ties the taxability of disability benefits to who paid for the coverage. If the employer pays the entire premium, any benefits the worker collects are taxable income. If the employee pays the full premium with after-tax dollars, the benefits are tax-free. When the two share the cost, only the portion tied to the employer’s contribution is taxable.¹²

One wrinkle: when employees pay premiums through a pre-tax cafeteria plan, the IRS treats those premiums as employer-paid, which makes the benefits fully taxable. That matters when choosing between Form DB-135 and Form DB-136, because the tax consequences fall on the worker collecting benefits. Employers absorbing the full premium should make sure employees know that any benefits they receive will be subject to income tax.

1
New York State Insurance Fund. NYSIF Lowers Standard Disability Benefits Premium Rate 2026
2
New York State Senate. New York Workers’ Compensation Law 212 – Voluntary Coverage
3
New York State Workers’ Compensation Board. Workers Disability Benefits
4
New York State Insurance Fund. About Your Disability Benefits Claim
5
New York State Workers’ Compensation Board. Form DB-135 – Employers Application for Voluntary Coverage
6
New York State Workers’ Compensation Board. Form DB-136 – Employers Application for Voluntary Coverage
7
New York State Workers’ Compensation Board. Disability Benefits Forms Employers
8
New York State Workers’ Compensation Board. DB/PFL Proof of Coverage – Instructions for Submission
9
New York State Senate. New York Workers’ Compensation Law 211 – Provision for Payment of Benefits
10
New York State Workers’ Compensation Board. Disability and Paid Family Leave Benefits Penalties for Not Having Coverage
11
Legal Information Institute. 12 NYCRR 380-10.2
12
Internal Revenue Service. Life Insurance and Disability Insurance Proceeds