CH 15 Federal Tax Considerations for Health Insurance

Question 1

Under a fully contributory health plan, how are benefits received by the employee?

Answer 1

Income tax free

Question 2

How are benefits received by the business from a key person disability insurance?

Answer 2

Income tax free

Question 3

In group medical and dental expense insurance, what percentage of premium paid by the employer is deductible as a business expense?

Answer 3

100%

Question 4

How are the benefits of group accidental death and dismemberment received

Answer 4

Income tax free

Question 5

How long do short term disability group plans pay benefits?

Answer 5

For a period of less than two years

Question 6

How are individually owned disability income benefits taxed once received by the insured?

Answer 6

Disability benefits are not taxed; they are received income tax for

Question 7

What are the tax implications for employer contributions to health reimbursement account?

Answer 7

Employer contributions are tax deductible as business expenses

Question 8

What is the tax advantage of the employer paying premiums for its employees for disability income insurance?

Answer 8

Premiums are deductible As a business expense

Question 9

In order to be eligible for coverage by an HSA, an individual must also be covered by what type of health plan?

Answer 9

High deductible health plan (HDHP)

Question 10

Under what employer provided plan are the benefits taxable to an employee in proportion to the amount of premium paid by the employer?

Answer 10

Disability income

Question 11

How are excess funds in an employees health savings account (HSA) handled?

Answer 11

The funds can be carried forward to the next year

Question 12

Which of the following statements about HRA is TRUE?

A) The account allows roll-over of unused balances at the end of the year at the employer’s discretion
B) The account allows roll-over of unused balances at the end of the year at the employee’s discretion
C) The account only allows roll-over og half the unused balances at the end of the year
D) The account does not allow roll-over of unused balances at the end of the year

Answer 12

The account allows roll-over of unused balances at the end of the year at the employer’s discretion.

Question 13

How can LTC benefits be received tax free by an individual?

A) If the amount of the premium paid exceeds 4% of the individuals income
B) Only if the individual itemizes the premiums
C) Only if the individual does not itemize the premiums
D) In any case, benefits are received tax free

Answer 13

In any case, benefits are received tax free.

Question 14

Which type of insurance provides funds for a business organization to purchase the business interest of a disabled partner?

A) Disability interest Buy-out
B) Corporate transfer
C) Corporate disability
D) Disability buy-sell

Answer 14

Disability buy-sell.

Question 15

Susan owns an individual long-term care insurance plan and is able to deduct the premiums from her taxes. What income will be imposed on the benefits she receives?

A) State income tax
B) Federal and state income tax
C) None
D) Federal income tax

Answer 15

None.

Question 16

Under a key person disability income policy, premium payments

A) Are made by the business and are tax-deductible
B) Are made by the business and are not tax-deductible
C) Are made by the employee and are not tax-deductible
D) Are made by the employee and are tax-free

Answer 16

Are made by the business and are not tax-deductible.

Question 17

Employers can reduce health plan costs by coupling a health reimbursement account (HRA) with

A) Nothing; HRAs cannot be couple with any other health plan
B) A high deductible health plan
C) A low deductible health plan
D) An IRA

Answer 17

A high deductible health plan.

Question 18

How are employer contributions to health reimbursement accounts treated in regards to taxation?

A) They are taxed as a regular business expense
B) They are treated as income tax for the employer
C) They are excluded from all taxation
D) They are tax deductible

Answer 18

They are tax deductible.

Question 19

Which of the following is not true of disability buy-sell coverage?

A) The policies provide funds for the business organization to purchase the business interest of a disabled partner
B) Benefits are considered taxable income to the business
C) It is typically written to cover partners or corporate officers of a closely held business
D) Premium payments are not deductible to the business

Answer 19

Benefits are considered taxable income to the business.

Question 20

A noncontributory group disability income plan has a 30 day waiting period and offers benefits of $2,000 a month. If an employee is unable to work for 7 months due to a covered disability, the employee will receive

A) $14,000, none of which is taxable
B) $14,000, all of which is taxable
C) $12,000, none of which is taxable
D) $12,000, all of which is taxable

Answer 20

$12,000, all of which is taxable.

Question 21

Which of the following determines whether disability insurance benefits are taxed?

A) Contract provisions
B) If the total of benefits paid meets the minimum state taxation standard
C) Whether the premiums were tax deductible
D) State statutes

Answer 21

Whether the premiums were tax deductible.

Question 22

When may an insured deduct unreimbursed medical expenses paid under a long-term care policy?

A) Only if the insured does not itemize the expenses
B) When the expenses exceed a certain percentage of the insured’s adjusted gross income
C) Only if the insured is age 65 or older
D) All LTC expenses are tax deductible

Answer 22

When the expenses exceed a certain percentage of the insured’s adjusted gross income.

Question 23

The limits of a health reimbursement account are set by

A) State statutes
B) The insurer
C) Federal regulation
D) The employer

Answer 23

The employer.

Question 24

Group disability income insurance premiums paid by the employer are

A) Taxable to the employee
B) Tax deductible by the employee
C) Tax deferred to the employer
D) Deductible by the employer as an ordinary business expense

Answer 24

Deductible by the employer as an ordinary business expense.

Question 25

S is a sole business proprietor who owns a medical expense plan. What percentage of the cost of the plan may he deduct?

A) 25%
B) 50%
C) 75%
D) 100%

Answer 25

100%.

Question 26

Which of the following is true regarding benefits paid to disabled employees?

A) They are exempt from taxation if any portion of the premium was paid by the employee
B) Tax withholding is required if the employee paid the premium
C) Disability benefits are not taxed
D) They may be subject to taxation if the premium was paid by the employer

Answer 26

They may be subject to taxation if the premium was paid by the employer.