Catherine has just been diagnosed with severe liver disease and will be out of w

Question

Catherine has just been diagnosed with severe liver disease and will be out of work for eight months. Catherine has a long-term disability policy that will pay her 70% of her currently monthly salary of $3,500. The premium of the policy is $120 per month and half is paid by Catherine and the balance is paid by her employer. The elimination period is 60 days. Assuming that Catherine is out of work on disability for the full eight months, how much of her total benefits are taxable?

1. 0.

2. $7,350.

3. $9,800.

4. $14,700

Explanation / Answer

Answer:-

In this case employer pays part of the insurance premium and Catherine is paying the rest, hence her tax liability will be split as well. The part of the benefit she receives that is related to the employer-paid share of the premium is taxable; any part of the benefit related to her share of the premium is tax free.

Hence taxable benefits will be as under:-

=($3,500*8)*70/100

=19600/2=$9,800

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