Disability payments as plan income?

[Guest Kent Hieronymus]

Could someone please give me some guidance on when payments made to a participant on disability leave should count as income for plan purposes. Do factors like W-2 reportability, FICA funding and how the premiums are paid have any relevance?

Please advise.

[Alf]

The terms of the plan document will control. There will probably be several different definitions of compensation that are each used for different purposes. Carefully review each of these to determine whether or not these payments are included.

[KIP KRAUS]

STD benfit payments are fully taxable in the year recieved. They are subject to FICA and federal taxes, and in states with income taxes they are subject to state taxes. W-2s must be issued and filed on form W-3 as well.

The exception is that they are only taxable to the extent that the employee does not pay the premiums. Any percentage of premiums paid by the employee are exempt. Therefore if the employee pays for instance 30% of the premiums only 70% are subject to tax, but the total is subject to FICA.

If the plan is insured the insurer should be witholding FICA and reporting it to the SS Administration and the employer so the employer can pay its portion and report it.

The insurer may prepare the w-2s, but not always. Contact the insurer for their procedure.

[This message has been edited by KIP KRAUS (edited 02-08-2000).]

[KIP KRAUS]

I assumed you were talking about STD payments. I wasn't thinking about 401(k)disability payments. They of course are treated diferent. I'm not sure,but I think they are taxable but the 10% penalty not applied. If taxable a 1099R would probably issued.