Question

Mary is an employee who is covered with a disability income policy through her employer. She pays for the portion of the premium attributable to the cost of residual disability benefits, while her employer pays for the remainder. What are the tax implications of this policy?

Answer 1

Mary's tax implications for her disability income policy depend on premium payments; the employee-paid portion offers tax-free benefits, while the employer-paid portion is taxable upon payout.

Step-by-step explanation:

Mary, an employee who has a disability income policy provided through her employer, faces specific tax implications depending on how the premiums are paid. Because Mary pays for the portion of the premium related to residual disability benefits, the benefits she receives from this part of the policy are likely tax-free at payout. On the other hand, since her employer pays for the rest of the premium, any benefits Mary might receive from this portion would typically be subject to income taxes. Deductions from Mary's wages, like taxes and various insurance contributions, represent portions of parking withholding, or PAYG taxes. Additionally, employers contribute to social security and other insurances that can include disability based on the wages of their employees.