Are Your Group Benefits Taxable?

Short answer is "it depends". If a company is paying the cost of an employee's benefit package, the cost of those benefits is a "taxable benefit" and the cost of those benefits is added to the employee's current years income.

The question then becomes, "Are the benefits you or your beneficiary receive taxable?". For the most part no. That, of course, is one of the advantages of group insurance; the benefits are "tax free". There is, however, one exception.

If an employer is paying any portion of the cost of any "income replacement benefits", ie short term or long term disability, then those benefits, when received, are taxable benefits. Be sure, if an employee is contributing to the cost of a benefit package, that the contribution paid by the employee is first applied to the income replacement portion of the benefit package. By doing this, you insure that any income benefits, in a claim situation, remain non-taxable.

Some people still think that life insurance is taxed upon receipt by a beneficiary. That was true many years ago, but is no longer the case. Life insurance benefits are received tax free by named beneficiaries. If the estate is the beneficiary, the proceeds will be added to the estate for "probate" calculations and costs.

This matters the most at claim time. It will make a big difference in the money that ends up in the employees pocket. It pays to make sure the paper trail is done correctly.

Johnny V