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?

A. $14,700.

B. $0

C. $7,350.

Answer 1

Catherine has worked for eight months, but elimanation period is 60 days.

So, net worked is 6 months for income tax purposes

So, premium is taxable only 50% of paid by employer

Employer paid a premium of $3500*8months = $21,000

The taxable amount = $21000*70%*50% = comes to $7,350

Answer is Option C, $7,350.

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