A group Disability Income plan that pays tax-free benefits to covered employees is considered?

A group Disability Income plan that pays tax-free benefits to covered employees is classified as fully-contributory because the premiums for such a plan are paid entirely by the employer. In this arrangement, since the employer is the one responsible for paying the premiums, the benefits received under the plan are not subject to income tax for the employees.

In contrast, if contributions were made by the employees, or if the plan were partially contributory, the tax treatment of benefits could vary. For example, if employees contribute to the premiums, benefits may be taxable to the extent of the contributions made. Therefore, a fully-contributory plan ensures that employees receive tax-free income upon the occurrence of a disability, as the employer absorbs the premium costs associated with the plan.