Employee Benefits. Ursula is employed by USA Corporation. USA Corporation provides?

Question

Employee Benefits. Ursula is employed by USA Corporation. USA Corporation provides

medical and health, disability, and group term life insurance coverage for its employees.

Premiums attributable to Ursula were as follows:

Medical and health $3,600

Disability 300

Group term life (face amount is $40,000) 200

During the year, Ursula suffered a heart attack and subsequently died. Before her death,

Ursula collected $14,000 as a reimbursement for medical expenses and $5,000 of disability

income. Upon her death, Ursula’s husband collected the $40,000 face value of the life

insurance policy.

a. What amount can USA Corporation deduct for premiums attributable to Ursula?

b. How much must Ursula include in income relative to the premiums paid?

c. How much must Ursula include in income relative to the insurance benefits?

d. How much must Ursula’s widower include in income?

please help.Thanks!

Answer 1

a. All premiums paid for Ursula's employee benefits, but must exclude any part of those premiums paid by Ursula.

b. That depends on how Ursula's pay package is structured. Usually $0.

c. Insurance benefits are usually not considered income but reimbursement. The exceptions are benefits like disability. If the premiums are paid by an employer, the benefits are considered income. If Ursula paid the premiums with pre-tax payroll deductions, it's income because no money was paid on the money, BUT if the premiums are paid with after-tax dollars, it's merely "reimbursement" because taxes have already been paid. These are considered "indemnity" plans. That's also why the $14,000 she received as "reimbursement" is not income.

d. Life insurance is NEVER considered income.