Final answer:
The taxability of Loretta's disability insurance depends on how the premiums were paid. Benefits might not be taxable if paid with after-tax dollars, but if paid with pre-tax dollars, they are likely taxable income.
Step-by-step explanation:
The student's question pertains to whether Loretta has to include the entire $6,200 received from disability insurance in her gross income. To accurately answer, more information is needed about the nature of the disability insurance premiums paid. If Loretta paid the premiums with after-tax dollars, the benefits received would generally not be taxable. However, if the premiums were paid with pre-tax dollars or by her employer, the benefits could be considered taxable income.
In related scenarios, individuals calculating their earnings might need to determine deductions and taxes from their income. This involves understanding various taxation rules, such as deductions for Social Security and Medicare, and applying percentages to calculate federal and state taxes.