Terry was ill for three months and missed work during this period. During his il

Question

Terry was ill for three months and missed work during this period. During his illness, Terry received $4,200 in sick pay from a disability insurance policy.

What amounts are included in Terry’s gross income under the following independent circumstances? (Leave no answer blank. Enter zero if applicable.)

Terry has disability insurance provided by his employer as a nontaxable fringe benefit. Terry’s employer paid $1,540 in disability premiums for Terry this year.  

amount included________

Terry paid $1,540 in premiums for his disability insurance this year.

amount included________

Terry’s employer paid the $1,540 in premiums for Terry, but Terry elected to have his employer include the $1,540 as compensation on Terry’s W-2.

amount included________

Terry has disability insurance whose cost is shared with his employer. Terry’s employer paid $1,000 in disability premiums for Terry this year as a nontaxable fringe benefit, and Terry paid the remaining $540 of premiums from his after-tax salary. (Do not round intermediate calculations. Round your answer to the nearest whole dollar amount.)

amount included________

Terry was ill for three months and missed work during this period. During his illness, Terry received $4,200 in sick pay from a disability insurance policy.

Explanation / Answer

Part 1)

The amount to be included is $4,200.

__________

Explanation:

The amount of $4,200 (disability pay) will get included in Terry's gross income. It is so because the insurance premium paid by the employer was in the form of non-taxable fringe benefits. Therefore, the disability premium of $1,540 paid by the employer will not get included in the gross income of Terry.

__________

Part 2)

The amount to be included is 0.

__________

Explanation:

In this case, the amount of $4,200 (disability pay) will not be included in Terry's gross income. It is so because, the payment for disability insurance premiums was made by Terry and not by the employer.

__________

Part 3)

The amount to be included is 0.

__________

Explanation:

In the given case, the premium paid on behalf of Terry by the employer will be treated as a taxable compensation (because of the election made by Terry). Such a payment is treated (in the same manner) as if Terry had made the payment for insurance premiums (as in Part 2 above) and therefore, the disability pay of $4,200 will not be included in Terry's gross income.

__________

Part 3)

The amount to be included is $2,727.

__________

Explanation:

Only that portion of disability pay will be included in the Terry's gross income, the insurance premium for which was paid by the employer. Therefore, the amount to be included in gross income can be calculated as follows:

Amount of Disability Pay to be Included = 4,200*1,000/1,540 = $2,727

The remaining value of disability pay of $1,472 (4,200*540/1,540), the premium for which was paid by Terry will not be treated as part of the gross income.

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