Samantha was ill for four months this year. Samantha missed work during this period, but disability insurance paid $18,000 of disability pay to replace her missed salary. Samantha shares the cost of the insurance with her employer. This year Samantha's employer paid $2,200 in disability premiums for Samantha as a nontaxable fringe benefit and Samantha paid the remaining $1,100 of premiums from her salary. What amount of the disability pay must Samantha include in her gross income (Rounded to the nearest whole dollar)?

Question

Quizplus · Accepted Answer

The portion of disability benefits that represents premium paid as a nontaxable fringe benefit is included in gross income. The employer paid 2/3ʳᵈˢ of the cost and so 2/3ʳᵈˢ of the pay is includible [$2,200/ ($2,200 + $1,100)] × $18,000 = $12,000. The remaining portion (1/3) of the disability benefits is excluded from gross income because the premiums were paid by the taxpayer.

Samantha Was Ill for Four Months This Year