Question

All of the following are true concerning taxation of medical benefits, EXCEPT:

a) Employer contributions are generally tax-deductible.
b) Employee contributions are typically made on a pre-tax basis.
c) Benefits received by an employee are usually taxable income.
d) Health savings account (HSA) contributions are tax-free.

Answer 1

Option c) is incorrect because benefits received by an employee through an employer-sponsored health insurance plan are generally not taxable income.

Step-by-step explanation:

Of the given statements, all except option c) are true concerning taxation of medical benefits. Option c) states that benefits received by an employee are usually taxable income, which is incorrect. In fact, benefits received by an employee through an employer-sponsored health insurance plan are generally not taxable income.

Let's go through each option to further understand:

1. a) Employer contributions are generally tax-deductible. This is true because employer contributions towards employee's health insurance premiums are typically tax-deductible for the employer.
2. b) Employee contributions are typically made on a pre-tax basis. This is also true. Employee contributions to health insurance premiums are often made on a pre-tax basis, which means they are deducted from the employee's gross income before taxes are calculated.
3. c) Benefits received by an employee are usually taxable income. This statement is incorrect. Benefits received by an employee through an employer-sponsored health insurance plan are generally not taxable income.
4. d) Health savings account (HSA) contributions are tax-free. This statement is true. Contributions made to a Health Savings Account (HSA) are typically tax-free and withdrawals for qualified medical expenses are also tax-free.