Please answer questions 11 and 12 as they relate to each other. 11. Libby earns
ID: 2331878 • Letter: P
Question
Please answer questions 11 and 12 as they relate to each other. 11. Libby earns $55,000 per year at her financial planning firm. Her employer has made a disability insurance arrangement available to all employees. $600 worth of pre paid on Libby's beh includes $55,600 in income as her disability benefits be taxable? Please explain. (1pt) miums are alf each year by her employer to the insurance company, and Libby wages for the year. If Libby becomes disabled, will her 12. If Libby only includes $55,000 in income as her wages for the year, will her disability benefits be taxable if Libby becomes disabled? Please explain. (1pt) 13. Sally is 68 years old and lives in an assisted living community. Sally receives $450 per day of benefit payments under her qualified long-term care insurance policy to help pay for nursing care. This year, she received 3 months of periodic long-term care insurance payments ($40,500 total). How much of her total benefits are included in her gross income? 2nteExplanation / Answer
Ans 11: As per the income tax rules, When a person pays the disability insurance premium with Pre-tax dollars, Then the benefit arising out of that insurance is tax payable. However, if premium is paid by post-tax dollars, then the benefit arising out of this insurance is not taxable. Hence, by applying this logic, in Question 11, Libby is not liable for tax on benefits from disability as she has already paid tax on premium.
In Question 12, Libby is liable to pay tax on the benefits arising out of disability insurance as she has not paid tax on the premium.
Question 13, as per income tax rules, any benefit received from qualified long term care insurance policy is treated as normal medical care and is not taxable subject to certain limits which are updated every year based on age of recipient. $450 for a person of 68 year old, is well within the limit and hence, not taxable for Sally.