Question

this year cassian was injured in an auto accident. as a result, he received the following payments.cassian received $18,000 of disability pay. cassian has disability insurance provided by his employer as a nontaxable fringe benefit. cassian's employer paid $4,300 in disability premiums for cassian this year.cassian's hospital bills totaled $4,500 and were paid by his health insurance. cassian has health insurance provided by his employer as a nontaxable fringe benefit. cassian's employer paid $6,250 in health insurance premiums for cassian this year.what amount must cassian include in his gross income?

Answer 1

Cassian must include the $18,000 of disability pay in his gross income, as his employer paid the premiums for the disability insurance as a nontaxable benefit. The $4,500 paid by health insurance for his hospital bills is generally not included in gross income, as it is a payment for medical expenses.

Step-by-step explanation:

Cassian should determine the taxable and nontaxable amounts he received due to his auto accident based on Internal Revenue Service (IRS) regulations concerning disability pay and health insurance benefits. Generally, disability payments that are received under an insurance policy as a result of paying premiums with after-tax dollars are not taxable. However, if an employer pays for the policy premiums and they are not included as taxable income to the employee, then the proceeds from such a policy are typically taxable income to the employee.

In Cassian's case, since his employer paid the disability insurance premiums and they are considered a nontaxable fringe benefit, it implies these premiums were not included in Cassian's gross income. Therefore, the $18,000 of disability pay he received as a result would generally be considered taxable income. On the other hand, the health insurance payments that covered Cassian's hospital bills are typically not included in gross income, as such payments are made directly to healthcare providers for medical expenses incurred due to injuries suffered in an accident.

Consequently, Cassian must include in his gross income the $18,000 of disability pay he received, and the $4,500 paid by health insurance for his hospital bills would not be included in his gross income.