If an individual is insured under an employer's group disability income policy and suffers an accident that leaves them unable to work, what is true about the benefits?

When an individual is covered under a group disability income policy provided by an employer, the taxation of benefits hinges on how the premiums for the policy were paid. If the employer provides the coverage and pays the premiums, or if the premiums are deducted pre-tax from the employee's wages, then the benefits are considered taxable income. This is true because the employer's contribution to the premiums constitutes a non-taxed benefit; hence, when claims are paid, the IRS requires that those benefits be taxed.

Understanding this taxation structure is critical. Specifically, when the employer contributes to the cost of the disability policy, those contributions make the benefits subject to income tax. Therefore, the benefits attributable to the employer contributions will indeed be fully taxable.

In contrast, options regarding benefits being entirely tax-free or not taxable do not take into account the influence of employer contributions. Moreover, discussing income limits is unrelated to the primary concern of taxability and the specific structure of group disability income insurance. Thus, recognizing that benefits linked to employer contributions are taxable clarifies the taxation of such benefits, making that understanding essential for evaluating both taxation implications and personal financial planning related to disability insurance.