Question 36

The $2,000 benefit received by P is taxable to P.

Since the benefit was received from an employer-paid Disability Income policy, it is considered taxable income to P. This means that P must report the $2,000 as income when filing taxes.

A) taxable to P

This option is correct because benefits received from an employer-paid disability policy are subject to income tax. The Internal Revenue Service (IRS) treats these benefits as ordinary income, which P must include in their taxable income.

B) tax free to P

This option is incorrect because the benefit received from the employer-paid policy is not considered tax-free income. Since the employer funded the policy, the IRS requires that the benefits be included in P's taxable income.

C) tax deductible to the employer

This option is incorrect. The employer pays for the disability income policy, but the premiums are not tax-deductible as a business expense in this context. The benefits received by the employee (P) are what are taxable, not the policy itself.

D) taxable to the employer

This option is incorrect because the benefit is not taxable to the employer. The employer is responsible for paying the premium and providing the benefit, but the tax implications apply to the employee who receives the benefit.

Conclusion

The $2,000 benefit is correctly classified as taxable income to P because employer-paid disability benefits are included in gross income by the IRS. All other options fail to recognize the tax implications associated with employer-paid benefits, thus solidifying the accuracy of option A.