I am enrolled in disability benefits through my employer group plan. They provide two choices to employees:
Pre-tax Option: You don't pay taxes on the benefit until you actually receive the benefit. If you were to go out on disability under this option, you would receive a percentage of your base salary (per the benefit) minus the taxes.
Post-tax Option: You are taxed on the premiums (as opposed to the benefit amount) associated with the disability benefit regardless if you are out on disability or not. However, if you do go out on disability the 60% of your income is received wholly and is not taxed.
I thought that disability benefits paid by a employer sponsored group plan are tax free only when the employee pays the whole premium vs. just paying tax on the premium as in the Post-tax Option above (see this link) but then they pointed me to this other document, in particular:
Under the Amended Plan, long-term disability benefits received by an employee who has irrevocably elected, prior to the beginning of the plan year, to have the coverage paid by the Employer on an after-tax basis for the plan year in which the employee becomes disabled are attributable solely to after-tax employee contributions and are excludable from the employee’s gross income under § 104(a)(3).
So I just wanted to verify this with some tax gurus here. In Summary if I am on a group disability plan in which the employer pays the premium but includes it as part of my earnings on my W2, then can I claim the benefits tax free?