Taxation of Health Insurance Chapter 22

Question 1

If a company buys disability buy-sell insurance,

A. the businessowners must pay tax on the benefits received

B. the premiums are deductible by the businessowners

C. the premiums are not deductible by the business

D. the business must pay tax on the benefits received

Answer 1

C

Question 2

Which statement regarding health savings accounts (HSAs) is not correct?

A. individuals that set up HSA accounts are not required to be enrolled in a high-deductible health plan (HDHP)

B. withdrawals for nonqualified medical expenses are subject to taxation

C. contributions to an HSA are tax deductible

D. an individual may not establish an HSA if she is covered by Medicare

Answer 2

A

Question 3

Flexible spending accounts (FSAs) are also known as

A. snack bar plans

B. buffet plans

C. commissary plans

D. cafeteria plans

Answer 3

D

Question 4

When a group disability insurance plan is paid entirely by the employer, benefits paid to disabled employees are

A. taxable income to the employee

B. deductible income to the employee

C. taxable income to the employer

D. deductible business expenses to the employer

Answer 4

A

Question 5

When the premiums for qualified long-term care insurance are paid by an employer,

A. the employer may not deduct the premiums

B. the employee pays taxes on the benefits

C. the benefits are tax-free up to a specified inflation-indexed limit for employees

D. the employee pays taxes on the premiums

Answer 5

C

Question 6

Which of the following requires the insured to have a high deductible health plan?

A. an HMO

B. a PPO

C. an HSA

D. a POS plan

Answer 6

C

Question 7

Brent is covered by his employer’s group disability plan, which is noncontributory. He was involved in a car accident and was unable to work for 6 months. During that time, Brent received $9,000 in disability income payments. Based on these facts, which of the following statements is correct?

A. the disability income payments are not considered taxable income to Brent

B. Brent will be able to deduct the amount of premiums associated with his coverage, but he will be taxed on the benefit payments

C. the disability income payments will be fully taxable to Brent

D. the disability benefit payments are deductible by Brents employer

Answer 7

C

Question 8

Which of the following statements regarding health savings accounts (HSAs) is not correct?

A. contributions to an HSA are tax deductible

B. funds roll over and accumulate year to year if not spent

C. individuals who are covered by Medicare are eligible to establish HSAs

D. earnings in an HSA grow tax deferred

Answer 8

C

Question 9

A flexible spending account (FSA)

A. is funded by employer contributions to pay for approved health care costs

B. allows funds to roll over from year to year

C. is a qualified employee benefit plan and approved withdrawals are not taxed

D. requires employees to establish a high deductible health plan (HDHP)

Answer 9

C

Question 10

If a company pays the premiums on a disability income policy covering a key employee,

A. the company receives benefits from the policy income tax-free

B. the company cannot deduct the premium if benefits are paid to the key employee

C. the benefits received by the employee are not subject to tax

D. the company can deduct the premium if the benefits are payable to the company

Answer 10

A

Question 11

Which of the following statements regarding medical expense policies for people who are self-employed is not true?

A. premiums are not tax deductible

B. premiums are not deductible if the insured is eligible to participate in a group health plan

C. premiums are deductible if the business shows a net profit at the end of the year

D. benefits are not taxable

Answer 11

A

Question 12

Petra is self-employed and pays $5,000 a year in premiums for health insurance covering her family. If her spouse also works and is covered by an employer sponsored health plan, what is the maximum income tax deduction that Petra can take for her health insurance coverage?

A. $0

B. $2,500

C. $5,000

D. $3,000

Answer 12

A

Question 13

The purpose of a health savings account is to

A. serve as a tax favored way to accumulate funds to cover medical expenses

B. provide funds to pay for the health care of dependents

C. save for retirement

D. shield assets for the purpose of qualifying for Medicaid

Answer 13

A

Question 14

If a business entity purchases disability insurance on the lives of the businessowners to fund a disability buyout,

A. the business can take a partial deduction for the premiums paid

B. the businessowners can take a deduction for the premiums paid

C. the business cannot take a deduction for the premiums paid

D. the business can take a full deduction for the premiums paid

Answer 14

C

Question 15

With employer paid group health insurance, premiums are

A. taxable for employees

B. not taxable for employers

C. not taxable for employees

D. not deductible for employers

Answer 15

C

Question 16

Which of the following statements regarding the tax treatment of disability income insurance premiums is correct?

A. premiums paid by an employer are deductible by both the employer and the individual

B. premiums paid by an employer for a group disability plan are considered a taxable benefit to the employee

C. premiums paid for personal disability income insurance are deductible by the individual

D. premiums paid by an employer for a group disability plan are deductible by the employer

Answer 16

D

Question 17

Which of the following descriptions characterize a health reimbursement account (HRA)?

A. a cafeteria plan with several components

B. a tax exempt trust or account designed to pay for qualified medical expenses of the account holder

C. an employer funded account that pays employees for qualified medical expenses they incur

D. a tax exempt trust or account in a financial institution in which the account holder saves money for qualified medical expenses

Answer 17

C

Question 18

The premiums and benefits in a business overhead expense plan are

A. not deductible and taxable

B. deductible and tax free

C. not deductible and not tax free

D. deductible and taxable

Answer 18

D

Question 19

All of the following are eligible to establish a health savings account (HSA) except

A. a small employer

B. an individual family

C. a large employer

D. a group of unassociated individuals

Answer 19

D

Question 20

Which of the following is not a benefit of a qualified long term care policy?

A. premiums are tax deductible for self employed people

B. expenses are reimbursable under Medicare

C. benefits are received income tax free up to a specific amount

D. employer paid premiums are not taxable income to employees

Answer 20

B

Question 21

Megan is the sole proprietor of a bookstore and paid $5,000 last year in premiums for medical expense coverage. She incurred $6,000 in medical expenses and was reimbursed for these costs under her health plan. Which of the following statements is correct?

A. Megan can take a partial deduction for the amount of premiums paid

B. Megan can take a deduction for the entire amount of premiums paid

C. Megan must include the benefits received from her health plan in income

D. Megan must include part of the benefits received from her health plan in income

Answer 21

B

Question 22

Health reimbursement accounts are established by employers who provide covered employees with high deductible health plans. The employer makes tax deductible contributions, which employees can use for all of the following purposes except

A. to create tax deferred savings accounts

B. to apply co payments

C. to pay coinsurance

D. to pay deductibles

Answer 22

A

Question 23

Sajji has an accidental death and dismemberment policy through her company. What is the tax treatment on the expenses if her employer pays 100% of the premiums?

A. she receives benefits tax free and is taxed on the premium

B. the premiums are not deductible for her employer and her benefits are taxed

C. her employer may deduct the premiums and receive corporate benefits tax free

D. the premiums are deductible for her employer and her benefits are tax free

Answer 23

D

Question 24

Nonqualified withdrawals from a health savings account are subject to income taxes and a penalty of

A. 25%

B. 10%

C. 15%

D. 20%

Answer 24

D

Question 25

Which of the following statements regarding a health savings account (HSA) is not true?

A. earnings grow tax deferred

B. enrollment in a high deductible health plan is required

C. distributions are tax free for qualified medical expenses

D. contributions are taxed as ordinary income

Answer 25

D

Question 26

When a group disability insurance plan is paid entirely by the employer, benefits paid to disabled employees are

A. taxable income to the employee

B. deductible income to the employee

C. deductible income to the employer

D. taxable income to the employer

Answer 26

A

Question 27

Which of the following statements regarding health savings accounts is not correct?

A. qualified health care expenses include medicare supplement premiums

B. the maximum annual HSA contribution is based on the statutory limit for the individuals type of coverage

C. earnings in HSAs grow tax free

D. account beneficiaries can make tax free withdrawals to cover qualified health care costs

Answer 27

A

Question 28

Which of the following is not a type of business disability insurance plan?

A. business overhead expense (BOE)

B. split dollar

C. buyout

D. key person

Answer 28

B

Question 29

Which of the following statements about flexible spending accounts is not correct?

A. they may reimburse participants for all medical expenses

B. they provide reimbursement for medical expenses incurred

C. they allow participants to pay for health care expenses with pretax dollars

D. they may be provided as a stand alone plan or as part of a traditional cafeteria plan

Answer 29

A