The monthly indemnity paid to an employee under employer-paid group disability income insurance is not always tax-free. If the employer pays the premiums, the benefits received by the employee are typically taxed as income, unless the employee pays a portion of the premiums with after-tax dollars. The employer-paid premiums are deductible as a business expense for the employer, but the tax treatment of the indemnity benefits depends on who pays the premiums.
[Reference: Virginia Life, Annuities, and Health Insurance Code, Section 38.2-3500 (Group Disability Income Insurance and Taxation), , , ]
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