Which noncontributory group plan would a claim likely result in the payment of federal income taxes?

• A. Medical
• B. Life
• C. Dental
• D. Disability

Answer: (D)

When a group plan is funded entirely by the employer (noncontributory), the tax treatment of benefits depends on the type of benefit. Disability income benefits are considered wage replacement; because the premiums were paid by the employer, the benefits are taxable to you as ordinary income when received. Medical and dental reimbursements are generally tax-free, since medical benefits are excluded from gross income. Life insurance proceeds are usually tax-free to the beneficiary, with only specific exceptions, which means they aren’t taxed in the same way as disability benefits.

So, among the options, disability is the one where the claim is likely to be subject to federal income taxes under a noncontributory plan.