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Are the disability and life insurance premiums paid by employer taxable to employee?

L.  Teller's Profile

Are the short/long term and life insurance premiums paid by employer taxable to employee? Also, what benefits are included in a group term life insurance? What is a cafeteria plan?


(CFO/Board Advisor) |

Premiums for Group Term Life Insurance in excess $50,000 of coverage are taxable to the employee. IRS has tables to assist with the amount included in the employee's W-2. Also, IRS Publication 15-B is a good resource to review to understand the tax treatment of Fringe Benefits. The benefits in Group Term Life Insurance typically cover death. Premiums for Short-term and Long-term disability are not includable in the employee's W-2. Cafeteria Plans vary, but effectively it is a plan which allows an employee to chose which benefits he/she wants.

L. Teller
Title: Professional accountant
Company: NA-
(Professional accountant, NA-) |

Thank you for your post. The tax accountant told me that the disability benefits are taxable income when premiums are paid by employer and they were not included in employee's taxable income.
The tax accountant said that the premiums paid for life/disability insurance are not a deduction on tax return. What this means?
I am still confused.

Lyle Newkirk
Title: CFO
Company: Corrigo Incorporated
(CFO, Corrigo Incorporated) |

If the employer pays for disability insurance and does not charge them to the employee and there is a disability claim, the benefits paid are taxable to the employee. If the employer pays the disability premiums but charges the employee for them, the benefits received are not taxable to the employee. This is a very important point and one that is often overlooked. Disability claims are rare but they do happen and it is much better for the employee if the payments are not subject to tax.

Betty Click
Title: Asst Controller
Company: Ward Corp
(Asst Controller, Ward Corp) |

I believe if you have the employee pay with after tax money any claims are not taxable, but if you have the employee pay with pretax money the claims are taxable.

Topic Expert
Christie Jahn
Title: CFO
Company: Prime Investments & Development
(CFO, Prime Investments & Development) |

I would recommend for short-term and long-term liability to use a TPA if possible. Our disability is sponsored through the same company we get our dental from and they pay the disability benefits directly to the employee deducting the required taxes and they issue the W2 at the end of the year to the employee. We are responsible to file the employer portion of the taxes but it's fairly simple and straight forward then.


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