Question

In: Accounting

Keith has a Disability income insurance policy that pays 60% of pre-disability income after a 6-month elimination period.

Keith has a Disability income insurance policy that pays 60% of pre-disability income after a 6-month elimination period. Keith’s pre-disability wage is $56,000 annually.

a. What will be the tax treatment of the benefits received if Keith had paid all of the premiums himself?

b. What would be the tax treatment if Keith’s employer had paid all of the premiums?

Solutions

Expert Solution

A
The insurance benefits are ordinarily not of an “income” nature for tax purposes and thus the benefits received by the taxpayer are not subject to tax.
There fore the benefit received by Keith if he had paid all the premiums then it is not taxable.
B
If the premium is paid by the employer on behalf of Keith then the benefit received is taxable in the hands of Keith.

ekkarill92 answered 2 years ago
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