How are disability income benefits from a group policy paid for by an employer treated for tax purposes?

Disability income benefits from a group policy that are paid for by an employer are considered taxable income to the employee. This is because if the employer pays the premiums for the group disability insurance, the benefits received by the employee will be subject to income tax. This tax treatment aligns with IRS guidelines, which dictate that employer-paid premiums result in taxable benefits, contrasting with individual policies where the insured pays the premiums and can receive the benefits tax-free.

In situations where employees pay for their own disability insurance premiums, they would receive benefits tax-free. However, since the employer is footing the bill in this case, the benefits become part of the employee's taxable income upon receipt, making it crucial for employees to understand this aspect when they are considering the financial implications of their disability coverage.