Question

Terry was ill for three months and missed work during this period. During his illness, terry received $8,850 in sick pay from a disability insurcance policy.

a terry has disability insutance provided by his employer as a nontaxble fring benefit. Terry's employer paid $7,050 in disability premiums fot terry this year.

b.terry paid $7,050 in premiums for his disability insutance this year.

c.terry's employer paid the $7,050 in premiums for terry , but terry elected to have his employer include the $7,050 as compensation on terry's W-2.

d.Terry has disability insurance whose cost is shared with his employer. terry's emp;oyer paid $4,300 in disability premiums of terry this year as a nontaxable fringe benefit, and terry paid the remaining $2,750 of premiums from his after-tax salary.

Answer 1

a) $8,850. The disability pay of $8,850 is included in Terry’s gross income because Terry’s employer paidthe insurance premiums as a nontaxable fringe benefit to Terry. Consequently, the disability insurance premiums of $7,050 paid by Terry’s employer are excluded from Terry’s gross income.

b) $0 The disability pay of $8,850 is excluded from Terry’s gross income because Terry paid the insurancepremiums. Note: the cost of disability insurance premiums is not deductible as a medical expense.

C) 0. Even though his employer paid the premium, the premium is taxable compensation to Terry, so he istreated as though he paid the premiums. Thus, the answer is the same as for part b.

d) $3,598. A portion of the disability pay is excluded from Terry’s gross income because Terry paid a portionof the insurance premiums. Terry can exclude $3,452= [($2750 / $7050) × $8850

Thankyou