BenefitsLink logo
EmployeeBenefitsJobs logo

Subscribe to Newsletters

Search the News

Featured Jobs
401k Relationship Administrator
Plan Administrator
Senior ESOP Administrator - Review
ESOP Administrator
Client Service Associate
Search all jobs
Get the BenefitsLink app for iPhone and iPad LinkedIn

Jump to content


Grossing up Salaries to Cover Expense of Disability Premiums

  • Please log in to reply
6 replies to this topic

#1 LLandau


    Registered User

  • Registered
  • 49 posts

Posted 02 April 2002 - 04:15 PM

There is case law to suggest that if an employee pays for his disability premiums and the employer "grosses-up" the employee's salary to cover the amount of the disability insurance payments, the disability benefits are still taxable to the employee.

Any tax experts out there? Why are the benefits taxed. Is this an imputed income situation?

Or can the employee, legally, receive the benefits tax-free?

Would a top-hat plan, or a different plan design be an alternative?

Any help would be appreciated

#2 Sandra Pearce

Sandra Pearce

    Registered User

  • Registered
  • 225 posts

Posted 02 April 2002 - 05:57 PM

I'm not a tax expert but I do know that when an employer provides and pays for the disability insurance the disability benefit received by the employee is then taxable to the employee. This includes an instance when the employee pays for the insurance on a pre-tax basis. When the employee pays with after tax dollars for the insurance the benefit is not taxable.



    Registered User

  • Registered
  • 857 posts

Posted 03 April 2002 - 05:25 AM

See IRS section 105(a) as it relates to disability payments from employer paid premiums. May help

#4 GBurns


    Registered User

  • Sitewide Moderator
  • 3,854 posts

Posted 03 April 2002 - 12:40 PM

The Treas Regs would expand 105(a) further. See Treas Regs. 1.105-4, 7.105-1 and -2.

#5 mroberts


    Registered User

  • Registered
  • 433 posts

Posted 03 April 2002 - 02:50 PM

Actually, the IRS just took a look at a similar scenario in which the employer paid for the LTD coverage, but included the cost of the premiums in the participant's gross income and the benefits were found non-taxable. Shoot me an email to discuss further. Take Care!

#6 GBurns


    Registered User

  • Sitewide Moderator
  • 3,854 posts

Posted 03 April 2002 - 08:42 PM

This PLR 200204021 might explain best:


#7 LLandau


    Registered User

  • Registered
  • 49 posts

Posted 15 April 2002 - 03:20 PM

The opinion letter is Perfect !!!!! Right on point.

This is belated but sincere..... thank you very much.