If a business pays the premiums for a group disability income plan, how are the benefits received by an employee taxed if they suffer a disabling injury?

When a business pays the premiums for a group disability income plan, the benefits received by an employee who suffers a disabling injury are considered taxable income. This taxation occurs because the employer is the one covering the cost of the premiums, and in such cases, the Internal Revenue Service (IRS) treats the benefits as part of the employee's compensation. Since the employer has not withheld taxes on this amount, the employee must pay taxes on the benefits received.

In contrast, if an employee pays the premiums for their disability income plan with after-tax dollars, then the benefits would typically be received tax-free. Understanding the distinction between who pays the premiums is essential, as it directly affects the tax implications of the benefits received. This principle highlights the broader taxation framework for employer-sponsored benefits and emphasizes the importance of premium payment structures when considering tax liabilities.