In a group major medical plan, if the employer pays 75% of the premium and the employee pays 25%, how much would a $10,000 benefit be taxable as income under this plan?

• A. $2,500
• B. $5,000
• C. $7,500
• D. $0

Answer: (D)

Group health insurance benefits are generally tax-free because they reimburse medical expenses rather than provide wages. The split between what the employer covers and what the employee pays for the premium doesn’t change that tax treatment—the benefit itself is not added to the employee’s income as taxable income. So, a $10,000 medical benefit paid under a qualified group major medical plan would be received tax-free, amounting to $0 taxable income. This assumes the benefit is used to reimburse eligible medical expenses; if the plan paid a fixed cash amount not tied to actual medical costs, some or all of that could be taxable.