Disability Benefits

TBHRPRO · May 2004

We are looking at adding STD and LTD. Someone has told us that the benefit for both STD and LTD is subject to Social Security and Medicare taxes for the employer. We are not looking at funding this plan. Does anyone know if the benefit in subject to any taxes for either the employer or employee? (Federal, State, Social Security, or Medicare. If it is subject to tax, it sounds like a never ending accounting nightmare for LTD. If it makes a difference, we are considering paying for the LTD, and the STD would be strictly voluntary.

Pearce · May 2004

I can't speak for insured STD coverage because I have always been with companies providing salary continuation through the employee payroll and the benefit is taxable. As for LTD you can purchase the coverage and include in the contract that the insurance company pay the Federal taxes; however, the employer will be responsible for paying the unemployment taxes for a period that I believe is 6 months. Someone else may have better knowledge about the payroll aspects. I do know the contract can be written for the employer to pay the Federal taxes or for the insurer to pay them. Obviously, this could effect the premium. Reporting the unemployment wages has never been a problem as the insurance company provides a report regarding the earnings by employee and payroll enters appropriately on quarterly unemployment filings. Again, I don't handle payroll but this is my understanding. Regarding the taxability of the coverage to the employee - if your company pays for the LTD insurance the employee will have taxable income when the benefit is used. If the employee pays for the insurance premium the benefit when used is not taxable to the employee. It is likely that STD insurance and benefits would work exactly the same.

TBHRPRO · May 2004

Thanks, for your input. You spoke of Federal Taxes, but what about Social Security and Medicare? Does anyone know if the employer has to pay on the benefit received by the employee? (on the company paid LTD).

lnelson · May 2004

[font size="1" color="#FF0000"]LAST EDITED ON 05-05-04 AT 06:12PM (CST)[/font][br][br]We have an ee paid STD & LTD the premium is taken as a payroll deduction after tax it does not effect their taxable wages therefore does not effect the tax liabilities. Once taken out of check the ER pays the premium to the insurance company on behalf of the ee's.

Only FSA's or HSA's are pretax and those would lower your taxable wage and in doing so lower your tax liabilites.

Hope it helps.
Lisa

Disability Benefits

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