Question

Alan’s employer maintains a long-term disability income plan on which it pays all premiums. last year, alan received $40,000 in benefits under the plan during his period of disability. how much of the benefits received, if any, must alan include in his income?

a. $10,500
b. $10,000
c. $30,000
d. $40,000

Answer 1

Alan must include $10,500 of the benefits received in his income from the long-term disability income plan.

Step-by-step explanation:

Alan must include $10,500 of the benefits received in his income.

When an employer pays for a long-term disability income plan, any benefits received by an employee are typically considered taxable income unless the employee has paid the premiums themselves. In this case, since Alan's employer paid all the premiums, he must include a portion of the benefits in his income.

The taxable portion of the benefits is calculated by dividing the amount of benefits received by the number of payments Alan would have received had he not been disabled. In this case, Alan received $40,000 in benefits during his period of disability. If we assume he would have received monthly payments of $3,333.33 (40,000 / 12), the taxable portion would be $10,500 (3,333.33 x 3 months).