Justin is receiving disability income benefits from a group policy paid for by his employer. How are these disability benefits treated for tax purposes?

• A. Non-taxable income
• B. Taxable income
• C. Tax-free until retirement
• D. Taxed only if benefits exceed a certain amount

Answer: (B)

Employer-paid group disability benefits are treated as ordinary income to the recipient. When the employer pays the premiums, those dollars aren’t taxed to the employee as a separate premium payment, so the disability benefits you receive are considered wage replacement and must be included in gross income in the year you receive them. Only if you personally paid the premiums with after-tax dollars would the benefits generally be tax-free. So, the disability benefits from an employer-paid group policy are taxable income.