Base salary replacement: How the Monthly Number Is Actually Calculated
Base salary replacement: basis = base w-2 salary, ratio 60% typical, taxed taxed if employer-paid.

| Wage basis | Base W-2 salary |
|---|---|
| Replacement ratio | 60% typical |
| Tax treatment | Taxed if employer-paid |
The 60% figure is the industry anchor because it roughly equals after-tax take-home when benefits are paid tax-free. Employer-paid benefits are taxable income — so the same 60% is really closer to 52% net.
The calculation
| Parameter | Detail |
|---|---|
| Benefit component | Base salary replacement |
| Wage basis | Base W-2 salary |
| Ratio | 60% typical |
| Tax treatment | Taxed if employer-paid |
Two policies can both say ‘60%’ and pay thousands apart — the difference lives in the wage basis and the tax line, not the headline ratio.
Worked example
Take a $120,000 package that is $90,000 base plus $30,000 bonus. A ‘salary’ policy pays 60% of $90,000 = $4,500/month. An ‘income’ policy paying 60% of documented average earnings pays $6,000. Same person, same premium tier — $18,000 a year apart.
What to check in your contract
- The word after ‘disability income’ — salary, earnings or income.
- Whether employer-paid premiums make benefits taxable.
- Whether the ratio applies before or after SSDI offset.
Base salary replacement: the headline ratio is marketing — the wage basis and tax line are the contract.