Chapter 14: Federal Tax and Health Insurance

Question 1

TF: If the premiums are tax-deductible, the benefits are taxed as income. If the premiums are not tax-deductible, the benefits are tax-free, as long as they do not exceed the actual cost of medical expenses.

Answer 1

True

Question 2

TF: Premiums paid for individually owned disability income policies are not tax-deductible; however, disability income benefits are tax-free when paid with after-tax dollars.

Answer 2

True

Question 3

TF: Benefits received from a hospital indemnity plan are taxable.

Answer 3

False

Question 4

TF: Premiums for individual accidental death and dismemberment plans are tax deductible.

Answer 4

False

Question 5

TF: Premiums paid for medical expense policies are tax-deductible only if an individual’s unreimbursed medical expenses exceed 10% of their adjusted gross income. Deductions must be itemized on the individual’s tax return. Benefits are received tax-free.

Answer 5

True

Question 6

TF: Premiums paid for long-term care policies are tax-deductible only if an individual’s unreimbursed medical expenses exceed 10% of their adjusted gross income. Deductions must be itemized on the individual’s tax return. Deductions are limited to a specified dollar amount per year based on the Consumer Price Index and the recipient’s age. Benefits are received tax-free.

Answer 6

True

Question 7

TF: Premiums paid for Medicare Supplement policies are tax-deductible only if an individual’s unreimbursed medical expenses exceed 10% of their adjusted gross income. Deductions must be itemized on the individual’s tax return. Benefits are received tax-free.

Answer 7

True

Question 8

TF: Premiums for disability income insurance group policies paid by employers are tax-deductible as a business expense and are not taxed as income of the employee. Disability income benefits are not taxable if the employee makes the premium payments, but if the premiums are fully paid by the employer, then benefits are fully taxed as the income of the employee.

Answer 8

True

Question 9

TF: When the premium is paid in part by both employer and employee, the employee’s premium payments are not tax-deductible, but the employer’s premium payments are tax-deductible as a business expense.

Answer 9

True

Question 10

TF: Premiums for group medical or dental insurance policies paid by the employer are not tax-deductible.

Answer 10

False

Question 11

TF: Premiums for a group policy paid by the employee are tax-deductible only if the employee’s unreimbursed medical expenses exceed 10% of their adjusted gross income.

Answer 11

True

Question 12

TF: Premiums paid for employer group long-term care policies are tax-deductible only if an employee’s unreimbursed medical expenses exceed 10% of their adjusted gross income.

Answer 12

True

Question 13

TF: Qualified group long-term care policy employer-paid premiums are tax-deductible to the employer, premiums are not taxable to the employee, and benefits are tax-free. These tax advantages are not applicable to FSA (Flexible Spending Account) long-term care expenses or to Section 125 cafeteria plans.

Answer 13

True

Question 14

TF: Premiums for group Medicare Supplement insurance policies paid by the employer are tax-deductible as a business expense.

Any premiums paid by an employee for group Medicare supplement policies are tax-deductible only if an employee’s unreimbursed medical expenses exceed 10% of their adjusted gross income. Deductions must be itemized on the employee’s tax return.

Answer 14

TRUE

Question 15

TF: Premiums for accidental death and dismemberment insurance policies paid by the employer are tax-deductible as a business expense. The premiums are not taxable income to the employee, and benefits are received tax-free.

Answer 15

True

Question 16

TF: FICA requires both employers and employees to pay a certain percentage of taxes in order to fund Medicare and Social Security. Currently, the employee’s share of the Social Security portion of the FICA tax is 6.2% up to a limit of $128,400, and the employee’s share of the Medicare portion of the FICA tax is 1.45% with no limit on the amount of wages subjected. Currently, the employer is liable for 6.2% Social Security and 1.45% Medicare taxes.

Answer 16

True

Question 17

TF: Disability insurance policies are designed to provide disability income benefits to the business in the event of disability of a key person. Premiums for these policies are not tax-deductible as a business expense; however, the disability income benefits received by the business are tax-free.

Answer 17

True

Question 18

TF: Buy-sell policies are disability insurance policies that provide a benefit to allow the partners or owners or officers of closely held businesses to purchase the ownership interest of a disabled partner or owner.

Answer 18

True

Question 19

TF: Business Overhead Expense Policy = Premiums are Deductible, Benefits are Taxable

Answer 19

True

Question 20

TF: Premiums for disability reducing term insurance are not tax-deductible for the business. Benefits are received tax-free.

Answer 20

True

Question 21

TF: By contributing to an HSA, plan participants reduce their adjustable gross income, lowering their tax responsibilities. Contributions to an HSA are made on a pre-tax basis, and interest grows tax-deferred.

Tax-free withdrawals can be made from an HSA for: Physician’s expenses, Dental fees, Prescription drugs, Contacts, Eyeglasses, Lab expenses, Nursing home expenses, and Other qualifying expenses.

Answer 21

True

Question 22

TF: Employer contributions to a health reimbursement account (HRA) are tax-deductible as a business expense and are not part of the employee’s taxable income. Benefits are received tax-free.

Answer 22

True

Question 23

TF: Employees deduct pre-tax dollars from their income earnings and deposit them in an employer-sponsored flexible spending account (FSA). Employees submit receipts for eligible medical expenses for reimbursement up to the annual maximum.

Answer 23

True

Question 24

TF: Consumer-driven healthcare plans combine the use of HSAs and HRAs to pay for routine medical expenses and high-deductible coverage. Eligible HSA withdrawals and HRA reimbursements are non-taxable. Additional out-of-pocket deductibles paid by the insured are tax-deductible as applied to the federal medical expense deduction for medical expenses exceeding 10% of the individual’s adjusted gross income.

Benefits are received tax-free.

Answer 24

true

Question 25

TF: SSDI is a social program funded by payroll taxes withheld from every individual’s paycheck. The tax is split between employers and employees. Currently, the Social Security payroll tax is 6.2%, which is deducted from employees’ paychecks. Employers pay a matching 6.2% Social Security tax. Self-employed individuals must pay the entire 12.4% Social Security tax. Employers cannot take a deduction for Social Security tax contributions.

Answer 25

True

Question 26

TF: In order to qualify for SSDI, an individual must have worked in jobs covered by Social Security and have medical conditions that result in total disability. The following characteristics must be present in order to receive SSDI:

Unable to do the same work as before;
Unable to do another job due to medical condition(s); and
The disability has lasted or is expected to last for at least 1 year or result in death.

Answer 26

True

Question 27

TF: Medical improvement is expected then benefits will be reviewed within 6 – 18 months. Medical improvement is possible then benefits will be reviewed in 3 years. Medical improvement is not expected then benefits will be reviewed in 7 years.

Answer 27

True

Question 28

TF: Social Security disability benefits are taxable based on the adjusted gross income of the disabled.

Individuals with adjusted gross income of less than $25,000, filing individually, or $32,000, filing jointly, pay no income taxes on their benefits.
Individuals with adjusted gross income between $25,000 and $34,000 filing individually, or between $32,000 and $44,000 filing jointly, pay income taxes only on 50% of their benefits.
Individuals with adjusted gross income greater than $34,000 filing individually, or $44,000 filing jointly, pay income taxes on 85% of their benefit.

Answer 28

True

Question 29

Which of the following statements is true regarding key person disability income insurance?
Select one:
a. Premiums are not tax-deductible, but benefits are received tax-free.
b. Premiums are tax-deductible, but benefits are taxable.
c. Premiums are tax-deductible and benefits are tax-free.
d. Premiums are not tax-deductible and benefits are taxable.

Answer 29

A

Question 30

Roberto’s Sewing Machine Company has a group disability income policy for its employees. Premiums are entirely paid by the company. Which of the following is true regarding the benefits?
Select one:
a. Taxable
b. Only taxed if an individual’s unreimbursed medical expenses exceed 10% of their adjusted gross income
c. Not taxable
d. Only taxed if an individual’s unreimbursed medical expenses do not exceed 10% of their adjusted gross income

Answer 30

A

Question 31

Arturo buys an individual disability income policy. What are the tax consequences?
Select one:
a. Premiums are not taxed.
b. Premiums and benefits are tax-free.
c. Benefits are taxable.
d. Premiums are paid with after-tax dollars.

Answer 31

D

Question 32

ABC employer pays the entire cost of the group health insurance premiums. Which of the following is true regarding the taxation of premiums and benefits?
Select one:
a. Premiums are tax-deductible to the employer and benefits are taxable to the employees.
b. Premiums are not tax-deductible to the employer and benefits are tax-free to the employees.
c. Premiums are tax-deductible to the employer and benefits are not taxable to the employees.
d. Premiums are paid with after-tax dollars and benefits are taxable as ordinary income.

Answer 32

C

Question 33

Benefits for individual medical expense, LTC and Medigap policies are:
Select one:
a. Not taxable.
b. Only taxed if an individual’s unreimbursed medical expenses do not exceed 10% of their adjusted gross income.
c. Only taxed if an individual’s unreimbursed medical expenses exceed 10% of their adjusted gross income.
d. Taxable.

Answer 33

A

Question 34

Alex has an individual disability income policy. Of the following statements, which is correct?
Select one:
a. Alex’s premiums are tax-deductible, but benefits are subject to taxation.
b. Premiums cannot be deducted from taxes, but benefits are tax-free.
c. Premiums are not tax-deductible and benefits are subject to taxation.
d. Premiums can be deducted from taxes and benefits are received tax-free.

Answer 34

B

Question 35

Generally, how are health insurance policies taxed?
Select one:
a. If premiums are tax-deductible, benefits are taxed as income.
b. If premiums are tax-deductible, benefits are also tax-deductible.
c. Premiums and benefits are not taxed.
d. None of the above

Answer 35

A

Question 36

Stan’s Job Placement Services provides a group disability income policy to all employees. Premiums are paid in part by the employees. Of the following statements, which is true?
Select one:
a. Benefits are not taxable.
b. Benefits are taxable to employees based on the portion of the premiums paid by Stan.
c. Premiums are 100% tax-deductible.
d. None of the above

Answer 36

B

Question 37

Individual Medicare supplement and LTC premiums are:
Select one:
a. Always tax-deductible
b. Only tax-deductible if an individual’s unreimbursed medical expenses exceed 10% of their adjusted gross income
c. Only taxable if an individual’s unreimbursed medical expenses exceed 10% of their adjusted gross income
d. Never tax-deductible

Answer 37

B

Question 38

Wild Bill’s Bowling Alley provides a group disability income policy to its employees. Employees pay a portion of the premiums. Which of the following is true?
Select one:
a. Premiums are completely tax-deductible for Wild Bill and all employees.
b. The portion of premiums paid by Wild Bill is not tax-deductible.
c. Benefits are taxable to employees based on the portion of premiums paid by Wild Bill.
d. Benefits are never taxable.

Answer 38

C