Chapter Eleven: Federal Tax and Health Insurance

Wild Bill's Bowling Alley provides a group disability income policy to its employees. Employees pay a portion of the premiums. Which of the following is true?

Benefits are taxable to employees based on the portion of premiums paid by Wild Bill. When the cost of premiums is shared between the employer and employees, benefits are taxable based on the portion of premiums paid by the employer.

Stan's Job Placement Services provides a group disability income policy to all employees. Premiums are paid in part by the employees. Of the following statements, which is true?

Benefits are taxable to employees based on the portion of the premiums paid by Stan. When the cost of premiums is shared between the employer and employees, benefits are taxable based on the portion of the premiums paid by the employer.

Generally, how are health insurance policies taxed?

If premiums are tax-deductible, benefits are taxed as income. As a general rule, if the premiums are tax-deductible, the benefits are taxed as income.

Benefits for individual medical expense, LTC and Medigap policies are:

Not taxable. Benefits for individual medical expense, LTC and Medigap policies are received tax-free.

Individual Medicare supplement and LTC premiums are:

Only tax-deductible if an individual's unreimbursed medical expenses exceed 10% of their adjusted gross income Premiums for Medigap and LTC policies may be deducted from taxable income if the individual's unreimbursed medical expenses exceed 10% of their adjusted gross income.

Which of the following statements is true regarding key person disability income insurance?

Premiums are not tax-deductible, but benefits are received tax-free. A business cannot deduct the premiums for key person disability income insurance, but the benefits are received tax-free.

Arturo buys an individual disability income policy. What are the tax consequences?

Premiums are paid with after-tax dollars. Premiums for individual disability income policies are not tax-deductible, but benefits are received tax-free.

ABC employer pays the entire cost of the group health insurance premiums. Which of the following is true regarding the taxation of premiums and benefits?

Premiums are tax-deductible to the employer and benefits are not taxable to the employees. When the employer pays the premiums for a group health insurance policy, the employer can tax-deduct the amount of premiums paid. Employees do not pay taxes on medical expense benefits received.

Alex has an individual disability income policy. Of the following statements, which is correct?

Premiums cannot be deducted from taxes, but benefits are tax-free. Premiums for individual disability income insurance are paid with after-tax dollars, but benefits are not considered taxable income.

Roberto's Sewing Machine Company has a group disability income policy for its employees. Premiums are entirely paid by the company. Which of the following is true regarding the benefits?

Taxable When an employer pays all premiums for a group disability income policy, benefits are fully taxable to employees.