How to report disability insurance income?

curiousgeorge408 · Joined: 27 Dec 2007 Posts: 11

My sister received income from disability insurance in 2007.

Should she expect a form that reports the income and deductions?
If so, what form?

Or would the income and deductions be reported on the W-2
from her employer?

Where does she report the income on Form 1040?

(The answer is self-evident if all this should be reported on the
W-2 from her employer.)

She remained an employee while receiving disability payments.

This was not worker's compensation.

The insurance is underwritten by a third party. It is part of a
voluntary disability insurance plan offered by her employer.
Premiums were paid by a deduction from her paychecks.

FICA was withheld from the disability payments, but not
income taxes (surprise?).

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Archived from group: misc>taxes>moderated

Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

curiousgeorge408@hotmail.com wrote:
> My sister received income from disability insurance in 2007.
>
> Should she expect a form that reports the income and deductions?
> If so, what form?
>
> Or would the income and deductions be reported on the W-2
> from her employer?
>
> Where does she report the income on Form 1040?
>
> (The answer is self-evident if all this should be reported on the
> W-2 from her employer.)
>
> She remained an employee while receiving disability payments.
>
> This was not worker's compensation.
>
> The insurance is underwritten by a third party. It is part of a
> voluntary disability insurance plan offered by her employer.
> Premiums were paid by a deduction from her paychecks.
>
> FICA was withheld from the disability payments, but not
> income taxes (surprise?).
>
She should have already received a W2 from the third party IF those
premiums were "pre tax". And it sounds like it, since FICA was withheld.
this is what I've seen from Unum, a big insurance company up in
Maine.

ChEAr$,
Harlan Lunsford, EA n LA

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Benjamin Yazersky CPA · Joined: 02 Jan 2008 Posts: 41

On Feb 19, 8:09 pm, Harlan Lunsford wrote:
> curiousgeorge...@hotmail.com wrote:
> > My sister received income from disability insurance in 2007.
>
> > Should she expect a form that reports the income and deductions?
> > If so, what form?
>
> > Or would the income and deductions be reported on the W-2
> > from her employer?
>
> > Where does she report the income on Form 1040?
>
> > (The answer is self-evident if all this should be reported on the
> > W-2 from her employer.)
>
> > She remained an employee while receiving disability payments.
>
> > This was not worker's compensation.
>
> > The insurance is underwritten by a third party. It is part of a
> > voluntary disability insurance plan offered by her employer.
> > Premiums were paid by a deduction from her paychecks.
>
> > FICA was withheld from the disability payments, but not
> > income taxes (surprise?).
>
> She should have already received a W2 from the third party IF those
> premiums were "pre tax". And it sounds like it, since FICA was withheld.
> this is what I've seen from Unum, a big insurance company up in
> Maine.
>
> ChEAr$,
> Harlan Lunsford, EA n LA
>
> --

That w2 from the Ins co should NOT be FICA or medicare wages

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curiousgeorge408 · Joined: 27 Dec 2007 Posts: 11

On Feb 19, 5:09 pm, Harlan Lunsford wrote:
> She should have already received a W2 from the third party
> IF those premiums were "pre tax". And it sounds like it,
> since FICA was withheld.

Thanks so much for your prompt reply.

Yes, that is what I learned from
http://www.wwwebtax.com/income/long_term_disability.htm .
And yes, I learned that the premium payments were pre-tax
-- a cafeteria plan.

Although I think that web site tells me almost everything I
needed to know, your response answers one lingering
question. I wasn't sure if the W-2 would come from the
insurance company, or if the disability benefits and
deductions would simply be included on the employer's
W-2. I guess it is the former.

Thanks again.

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Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

Benjamin Yazersky CPA wrote:
> On Feb 19, 8:09 pm, Harlan Lunsford wrote:
>> curiousgeorge...@hotmail.com wrote:
>>> My sister received income from disability insurance in 2007.
>>> Should she expect a form that reports the income and deductions?
>>> If so, what form?
>>> Or would the income and deductions be reported on the W-2
>>> from her employer?
>>> Where does she report the income on Form 1040?
>>> (The answer is self-evident if all this should be reported on the
>>> W-2 from her employer.)
>>> She remained an employee while receiving disability payments.
>>> This was not worker's compensation.
>>> The insurance is underwritten by a third party. It is part of a
>>> voluntary disability insurance plan offered by her employer.
>>> Premiums were paid by a deduction from her paychecks.
>>> FICA was withheld from the disability payments, but not
>>> income taxes (surprise?).
>> She should have already received a W2 from the third party IF those
>> premiums were "pre tax". And it sounds like it, since FICA was withheld.
>> this is what I've seen from Unum, a big insurance company up in
>> Maine.
>>
>> ChEAr$,
>> Harlan Lunsford, EA n LA
>>
>> --
>
>
> That w2 from the Ins co should NOT be FICA or medicare wages
>
>
I agree; BUT.... it often is. However, just FICA and not the 1.45%
for medicare. Go figure.
(They don't)

ChEAr$,
Harlan

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Ron Rosenfeld · Joined: 25 Aug 2007 Posts: 52

On Tue, 19 Feb 2008 20:09:19 EST, Harlan Lunsford
wrote:

>She should have already received a W2 from the third party IF those
>premiums were "pre tax". And it sounds like it, since FICA was withheld.
>this is what I've seen from Unum, a big insurance company up in
>Maine.

The OP mentioned that the premium was withheld from her paycheck.

This may indicate that this was employee-paid disability.

If that was the case, then UNUM should not have been withholding anything,
and she should not be receiving a W2.

UNUM has made mistakes in this area in the past (personal experience).
--ron

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Harlan Lunsford · Joined: 25 Aug 2007 Posts: 790

Ron Rosenfeld wrote:
> On Tue, 19 Feb 2008 20:09:19 EST, Harlan Lunsford
> wrote:
>
>> She should have already received a W2 from the third party IF those
>> premiums were "pre tax". And it sounds like it, since FICA was withheld.
>> this is what I've seen from Unum, a big insurance company up in
>> Maine.
>
> The OP mentioned that the premium was withheld from her paycheck.
>
> This may indicate that this was employee-paid disability.

Au contraire, mon frere! It doesn't indicate anything except two
possibilities; either it was pre tax or post tax. And we don't know.
>
> If that was the case, then UNUM should not have been withholding anything,
> and she should not be receiving a W2.
>
> UNUM has made mistakes in this area in the past (personal experience).
> --ron
>
On the last point, ron, I will certainly agree with you!

ChEAr$,
Harlan Lunsford, EA n LA

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Ron Rosenfeld · Joined: 25 Aug 2007 Posts: 52

On Thu, 21 Feb 2008 17:39:20 EST, Harlan Lunsford
wrote:

>> The OP mentioned that the premium was withheld from her paycheck.
>>
>> This may indicate that this was employee-paid disability.
>
>Au contraire, mon frere! It doesn't indicate anything except two
>possibilities; either it was pre tax or post tax. And we don't know.

Oh, I certainly agree that we don't know. That's why I wrote "may"
indicate.

By the way, I don't know what the usual procedure is. But in my case, the
W2, had it been issued, would have come from my employer, and not from
UNUM.
--ron

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curiousgeorge408 · Joined: 27 Dec 2007 Posts: 11

On Feb 21, 7:11 pm, Ron Rosenfeld wrote:
> in my case, the W2, had it been issued, would have come
> from my employer, and not from UNUM.

That was my expectation, too. And in fact, my sister
"discovered" later that she did indeed receive two(!) W-2s
from the employer, the second presumably covering the
disability insurance payments. Even that seems odd to
me, at least if the EIN is the same on both W-2s. But I
have not seen the W-2s myself; and I would not rely on
my sister's interpretation of the facts.

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Ron Rosenfeld · Joined: 25 Aug 2007 Posts: 52

On Fri, 22 Feb 2008 10:22:29 EST, curiousgeorge408@hotmail.com wrote:

>That was my expectation, too. And in fact, my sister
>"discovered" later that she did indeed receive two(!) W-2s
>from the employer, the second presumably covering the
>disability insurance payments. Even that seems odd to
>me, at least if the EIN is the same on both W-2s. But I
>have not seen the W-2s myself; and I would not rely on
>my sister's interpretation of the facts.

One important fact that I don't think has been addressed. You mentioned
that "Premiums were paid by a deduction from her paychecks."

This raises the question (at least in my mind) as to whether this was an
employee-paid disability policy using AFTER-tax dollars. If it was, then
she probably should NOT be receiving any W2 at all -- the payments would be
non-reportable. And she certainly should not have had any FICA withheld.

However, if the amount deducted on her paycheck to pay for the policy was
NOT part of her taxable income (i.e. part of a cafeteria plan), then the
disability income would be fully taxable to her.

This link http://www.irs.gov/faqs/faq4-9.html and IRS Publication 525
(http://www.irs.gov/publications/p525/index.html ) have more information.
--ron

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