Question

in an employer-sponsored contributory group Disability Income plan, the employer pays 60% of the premium and each employee pays 40% of premium. Any income benefits paid are taxed to the employee at a. employee has no tax liability b. 40% of the benefit c. 60% of the benefit d. 100% of the benefit

Answer 1

In an employer-sponsored contributory group Disability Income plan, where the employer pays 60% of the premium and the employee pays 40%, the taxable income benefits to the employee would be based on the 60% employer contribution. Therefore, the correct answer to the tax liability on the income benefits would be 60%.

Step-by-step explanation:

The subject of the question is related to the taxation of income benefits paid from an employer-sponsored contributory group Disability Income plan. In such a plan, when the employer pays a portion of the premium and the employee pays the remaining portion, the taxable amount of the disability benefits to the employee depends on the portion they have contributed. Since the employer pays 60% of the premium and the employee pays 40%, correspondingly, the employee would have to pay taxes on the 60% of the benefit that is employer-funded. According to IRS rules, disability benefits paid under a plan that is primarily contributed to by the employer are taxable to the beneficiary. Therefore, even though employees typically contribute a certain percentage of the Social Security and Medicare taxes from their own paychecks, in the case of employer-funded benefits like disability insurance, the employee is taxed on the benefits funded by the employer, not on the percentage they paid in premiums.