Final answer:
Employer-paid premiums for certain benefits like health insurance are generally not included in an employee's gross income and are therefore false, but complexities can arise with different types of insurance or coverage amounts.
Step-by-step explanation:
The question of whether premiums paid by an employer for their employees must be included in the employee's gross income can be answered with a general False, although there are exceptions based on the type of insurance and the specifics of the tax code at the time. Deductions from an employee's wages, such as withholding tax, PAYE, or PAYG, are focused on income tax, social security contributions, and insurances like unemployment and disability. However, taxes paid by an employer on behalf of an employee, which are not deducted from the employee's wages, such as the employer's share of social security and other insurance programs, typically do not count as gross income to the employee.
In the context of the US tax code, employers can generally provide certain benefits tax-free to employees, including premiums for health, dental, and vision insurance. These benefits are not included in the employee's taxable income. However, taxation becomes more complex when considering other types of insurance, such as life insurance, where the cost of premiums for coverage over $50,000 must be included in an employee's income and subject to taxes. This is a concept referred to as the imputed cost of coverage over the IRS threshold.
Additionally, the tax incidence depends on how the tax burden is distributed between employers and employees. Employers might adjust wages to offset the tax payments they make on behalf of their employees. It is essential for employees to understand their paycheck and how taxes, benefits, and employer-paid premiums affect their gross and net income. Failure to comprehend these elements or to pay taxes on earned income could lead to legal penalties.