Individuals covered with employer-paid group health plans will normally receive tax-free benefits under all of these plans EXCEPT

• A. Disability Income
• B. HMO
• C. Vision
• D. Major Medical

Answer: (A)

Most employer-paid health coverage provides tax-free benefits because the premiums are paid by the employer and the benefits used for medical care aren’t taxed. An important exception is disability income coverage. If the employer pays the premium for disability insurance, the benefits you receive while disabled are generally taxable as ordinary income, since they replace earned wages and aren’t treated the same as medical expense reimbursements. In contrast, benefits from employer-funded plans like an HMO, vision, or major medical insurance are typically tax-free to the employee. So the one that isn’t normally tax-free is disability income.