Federal Tax Considerations for Health Insurance Quiz

The sole proprietor of a business makes a total salary of $50,000 a year. This year, his medical expenses have reached a total of $75,000. What amount may the sole proprietor deduct in regards to his medical expenses?

$50,000; The proprietors of a business may deduct the cost of a medical expense plan because they are considered to be self-employed individuals instead of employees. The deduction cannot legally exceed the taxpayer's earned income for the year even if the cost of the medical expense plan exceeds this amount (in this scenario, $50,000).

What percentage of individually-owned disability income benefits is taxable?

0%; Premiums are paid with after tax dollars. Benefits are not income taxable.

For group medical and dental expense insurance, what percentage of premium paid by the employer is deductible as a business expense?

100%

Under which condition would an employee's group medical benefits be exempt from income taxes?

An employee's group medical benefits are generally exempt from taxation as income; Also, premiums paid by the employer are deductible as business expenses.

Under a Key Person disability income policy, premium payments

Are made by the business and are not tax-deductible; however, benefits are received tax-free by the business.

Under what condition are group disability income benefits received by an employee NOT taxable as income? A. When the employer makes all the premium payments. B. When the employee is 59 ½. C. When the amount of the benefit is equal or less than the amount of contributed by the employer. D. When the benefits received are equal or less than the employee's percentage of the contribution.

D; Benefits received by the employee that are attributable to his or her portion of the contribution are not taxable as income.

An insured makes regular contributions to his Health Savings Account. How are those contributions treated in regards to taxation?

They are tax deductible; an individual covered by a high deductible health plan can make a tax - deductible contribution to an HSA & use it to pay for out-of-pocket medical expenses.

Premiums paid by self-employed sole proprietors or partners for medical expense insurance are

Totally tax deductible; Sole proprietors and partners may deduct 100% of the cost of a medical expense plan provided to them and their families because they are considered self-employed individuals, not employees.

Any portion of the benefit paid for and deducted by the employer will be considered

taxable income to the employee.

Which of the following is not true of Disability Buy-Sell coverage? A. The policies provide funds for the business organization to purchase the business interest of a disabled partner. B. Benefits are considered taxable income to the business. C. It is typically written to cover partners or corporate officers of a closely held business. D. Premium payments are not deductible to the business.

B; benefits are tax free.

Which of the following is INCORRECT concerning taxation of disability income benefits? A. If the employer paid the premiums, income benefits are taxable to the insured as ordinary income. B. If the insured paid the premiums, any disability income benefits are tax-free. C. If the benefits are for a permanent loss, the benefits paid to the employee are not taxable. D. If paid by the individual, the premiums are tax deductible.

D; If an individual purchases his or her own disability insurance with before-tax dollars, any benefits paid are tax free, but the premium is not tax deductible. If an employer pays the premium, the employer may deduct the premium as a business expense. Any benefits paid to an employee are taxable, unless it is for the permanent loss of a body part, or loss of use of a body part.

All of the following would be qualified as a dependent under a Dependent Care Flexible Spending Account, EXCEPT A. Joe was paralyzed from the neck down in a car accident and is cared for by his wife B. Matt must be constantly watched due to his violent muscle spasms which often lead to Matt injuring himself C. Pete is severely autistic and refuses to take care of his own personal needs, which are taken care of by his father D. Jeremy had to have both legs amputated, but has learned how to take care of himself and to get around in a wheelchair

D; Persons who cannot dress, clean, or feed themselves because of physical or mental problems are considered not able to care for themselves. Also, persons who must have constant attention to prevent them from injuring themselves or others are considered not able to care for themselves.

Which of the following individuals is eligible for a Health Savings Account? A. Margaret is 68 years old B. Suzie is a dependent on her parent's tax returns C. Tomas is insured by a Low Deductible Health Plan (LDHP) D. Allison is insured by a High Deductible Health Plan (HDHP)

D; To be eligible for a Health Savings Account, an individual must be covered by a High Deductible Health Plan (HDHP), must not be covered by other health insurance except for specific injury, accident, disability, dental care, vision care, or long-term care insurance, must not be eligible for Medicare, and can't be claimed as a dependent on someone else's tax return.

Group disability income insurance premiums paid by the employer are

Deductible by the employer as an ordinary business expense; The premium payments are neither taxable nor tax deductible to the employee.

Which type of insurance provides funds for a business organization to purchase the business interest of a disabled partner?

Disability Buy-Sell; The premiums are not deductible, but the benefits are received income tax-free.

Medical Savings Accounts (MSAs) are available to small business employees and self-employed individuals who have

High deductible health insurance

To be eligible for a Health Savings Account, an individual must be covered by a

High-deductible health plan

The annual contribution limit of a Dependent Care Flexible Spending Account is set by

The IRS

When may an insured deduct unreimbursed medical expenses paid under a long-term care policy?

When the expenses exceed a certain percentage of the insured's adjusted gross income; In either medical expense insurance policies or long-term care insurance policies, unreimbursed medical expenses paid for the insured, the insured's spouse and dependents may be claimed as deductions if the expenses exceed a certain percentage of the insured's adjusted gross income.

Health Savings Accounts (HSAs) are designed to

help individuals save for qualified out-of-pocket health care expenses; such as the deductible expense from a high deductible health plan.

In a plan funded entirely by the employer,

income benefits are included in the employee's gross income and taxed as ordinary income.