|
Found something interesting? Want to let someone else know about it? Simply click the "Tell A Friend" link!!
|
What's Happening
|
|
----------------- |
|
----------------- |
|
|
|
|  |
|
|
IRS Clarifies Disability Taxation
by PRINCIPAL Financial Group
Disability coverage is a vital employee benefit which can provide favorable tax treatment for employers and their employees. This clarifies taxation of long-term disability benefits under the recently published Revenue Ruling 2004-55.
The Landscape
The tax implications of a long-term disability are relatively straightforward. Typically there are four scenarios. Benefits will be tax free if a client pays for coverage with after-tax dollars. On the other hand, if your client pays for coverage with before tax dollars, the benefits will be taxable. The general rule is benefits from employer paid plans are fully taxable to the disabled employee. Lastly, if an employee has contributed to plan payments, a portion of the premium attributable to the employee’s contribution will be free of taxes. This latest revenue ruling confirms the evolving flexibility of employer paid long-term disability plans.
What’s New….Flexibility
Employers seeking to provide tax flexibility and choice for employees may continue to cover employees on a pre-tax basis. However, new plans may be amended to allow employees to elect prior to the plan year, long term disability coverage on an after-tax basis.
This decision must be “all or nothing.” In other words, the election applies to the entire cost of the coverage. An employee may not choose after-tax treatment for a part of the premium. In addition, this decision is irrevocable for each plan year. An employee electing after-tax treatment prior to the plan year may not opt for before-tax treatment before the plan year terminates.
The plan may require an employee make a new election every plan year or the plan may default to the employee’s prior election without further action. Furthermore, an employee becoming eligible during the plan year may make an irrevocable election for the remainder of the year. This holding applies to both long and short term disability plans.
Summary
Revenue Ruling 2004-55 builds on prior IRS declarations allowing greater choice for plan participants. Clients and their employees now have a choice of tax treatment. Consider the in-built flexibility of disability insurance when tailoring a competitive employee benefits package.
[PRINTER FRIENDLY VERSION]
|
|
| |
|
|
|
LETTERS
|
|
There are no letters for this article. To post your own letter, click Post Letter.
|
|
[POST LETTER]
|
|
|
|
