Question

Which statement is true regarding taxation of health insurance?

A. The benefits received from a group Accidental Death and Dismemberment Policy are taxable to the recipient
B. The benefits received from a Major Medical Insurance Policy are usually subject to federal income tax
C. The benefits received from a personally owned Disability Income Policy are subject to federal income taxes
D. The benefits received from a group Disability Income Policy paid entirely by the employer are fully taxable as income to the employee

Answer 1

Statement D is true regarding the taxation of health insurance; benefits from a group Disability Income Policy paid entirely by the employer are fully taxable to the employee.

Step-by-step explanation:

Indeed, statement D is accurate in the context of federal income tax treatment for health insurance, specifically group Disability Income Policies paid entirely by the employer. In this scenario, the benefits received by the employee are fully taxable as income. This is because the premiums for the group policy are typically deducted as a business expense by the employer, and any benefits paid to the employee are considered taxable income.

Conversely, benefits from a personally owned Disability Income Policy, where the individual pays premiums with after-tax dollars, are generally not subject to federal income taxes. This tax treatment aims to provide some relief to individuals who personally invest in disability insurance coverage, ensuring that benefits received during times of disability are not additionally taxed, offering a degree of financial support during challenging periods.