Disability and Tax Question in MICHIGAN!

[Lakshmi]

If an employer pays for an employees DI Policy, I do know that the benefit should be taxable when it comes time for a claim.

But, I am a little confused. What if an employer doesn't get a tax benefit by paying for it, is the employees benefit still taxed?

I have a client who wants to pay for his two employees DI policies. Is there a way around the benefit being taxed if the employer is paying the premium. Or any ideas on how to get around this without having to have the employees pay out of their own account?

I usually don't run across this, but just did. I'm also doing term life, and an accident plan with this same crew. So same questions for those?

The client's idea was to give those employees a small hourly increase in wage, but is there another way without having it come down to the employees paying from own account?

Hope I worded this so it's not confusing? lol

 

[VolAgent]

You can't have your cake and eat it too. Also, the employer does get a tax benefit of paying the premium. It is a business expense and thus tax deductible.

Either the employer can bump up their pay and hope they use the money to pay the premium or the employer can pay for it directly. Something to keep in mind if the employer pays it, even though it is now taxable, the employee is likely to have a lower income and higher expenses while disabled. Also, companies generally allow a higher percentage of income to be covered if the benefit will be taxable.

So the employee may come out just as well if not better off even if the benefits are taxable. Ideally the employee pays the premium with after tax dollars and receives the benefit tax free. But having the employer pay it and the benefit being subject to taxes is still better than having no benefit because the employee pocketed the money for the premiums.

 

[Lakshmi]

Thanks VolAgent!! You got back quickly and that helps.

I like my cake and like to eat it too!! Who doesn't??? I figured as much...lol. Thanks again.

 

[aclaro]

Bonus the employees the premium for the disability policy. Set up annual premiums and then a bonus one time a year to pay for the policy. This way the company takes it as payroll and the employee claims it as income and pays the taxes on the bonus. If they don't want the tax burden on the employees then you do a double bonus to cover the tax burden as well.

Also, if you have at least 3 policies on a list bill you can qualify for the multi-life discount.

 

[Lakshmi]

Even gets a little more tricky in my mind...ROP plans. lol

I think too much sometimes. UGH.

I like that suggestion aclaro. Great idea. I never would have thought that one up on my own. Thanks to both of ya.