Question 8

Disability insurance benefits from a group policy paid for by an employer are taxable income.

Disability insurance benefits received from a group policy funded by an employer are considered taxable income to the recipient. This is because the employer pays the premiums on behalf of the employee, making the benefits taxable under current tax laws.

A) They are not taxable.

This option is incorrect because disability benefits from an employer-paid group policy are indeed taxable. If the employer pays the premiums without any contribution from the employee, the IRS views these benefits as taxable income.

B) They are taxable income.

This option is correct as disability insurance benefits from a group policy funded by an employer are treated as taxable income. The Internal Revenue Service (IRS) requires that these payments be included in the recipient's gross income for tax purposes.

C) They are only subject to Social Security and FUTA taxes.

This option is incorrect since it implies limited taxation. While Social Security and FUTA taxes may apply to certain types of income, disability benefits from employer-paid policies are primarily subject to income tax rather than just these payroll taxes.

D) They can be deducted from gross income.

This option is incorrect because disability benefits received from an employer's group policy cannot be deducted from gross income. Instead, they must be reported as part of the taxable income when filing tax returns.

Conclusion

In summary, option B is the only correct answer, indicating that disability insurance benefits from an employer-paid group policy are taxable income. All other options fail to accurately reflect the tax treatment of these benefits, as they either misinterpret the tax implications or misstate the nature of the income itself. Understanding the tax status of these benefits is crucial for proper financial and tax planning.