Do I owe taxes on insurance benefits?

by Guest » Tue Oct 29, 2013 12:16 pm
Guest

I have come across some online stuffs earlier. Is that really so? Do you really need to pay taxes for the benefits you receive from your policies?

http://www.bankrate.com/finance/taxes/taxes-on-insurance-benefits.aspx
https://www.bankofamerica.com/home-loans/mortgage/budgeting-for-home/budgeting-for-taxes-and-insurance.go
http://sc.gov/Business/Pages/taxesAndInsurance.aspx

Total Comments: 3

Posted: Wed Oct 30, 2013 05:14 am Post Subject:

Do you really need to pay taxes for the benefits you receive from your policies?

Let's see, there are maybe hundreds of different types of insurance policies. Can you be more specific about the ones you want to discuss? Life, heath, auto, homeowners, disability income, etc.??

Posted: Thu Oct 31, 2013 06:00 am Post Subject:

Yes, just like what has been said in Bankrate.com - premiums which I'm not paying. We have an employer sponsored health plan and umbrella coverage. Something like that I guess, am not sure. Would I become responsible to pay taxes on the benefits I receive from that coverage?

Posted: Mon Nov 04, 2013 05:23 am Post Subject:

We have an employer sponsored health plan

Group health insurance benefits, even when the employer pays 100% of the cost/expense, are not taxable to the employees as income. Reason: You do not receive an direct (or personal) economic benefit from the money . . . the money is being paid to someone else who will declare it as part of their gross income, and they may have to pay income tax on the money.

umbrella coverage

What do you mean by this? "Umbrella" insurance usually refers to excess liability insurance, which is not something that an employee would need.

Disability income insurance is different. If the employer pays some or all of the premium, and the employee receives a benefit, the benefit is taxable as income to the extent that the employer paid the premium. If the employer pays 100%, the benefit is 100% taxable. If the employer pays 50%, then 50% is taxable. Income tax is not usually withheld from DI checks, and the employee is responsible for paying the tax when due.

In group life insurance, the maximum death benefit allowed without an income tax implication is currently $50,000. If an employee's life insurance benefit exceeds that amount, the employee will receive "imputed income" in the amount of the premium paid for any portion of the benefit over $50,000. The imputed income is not actually received, but it is included in gross wages and becomes taxable (but no tax is withheld). By doing this, the entire benefit will be paid tax free to the beneficiary in the event of the employee's death. Additionally, the value of a group life insurance death benefit is not includable in the estate of the deceased employee because the policy is owned by the employer.

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