[Tax lady]

We are having a debate in the office on whether this is allowed but cannot find anything definitive and I don’t have time to spend hours researching ambiguous code. This is for an accident policy for someone who is not getting the pre-tax deduction through their employer. I thought it was deductible but the reviewer says no. Does anyone know right off hand? If so, where I can find this in Pub 17 or Master Tax Guide?

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[san4596]

An accident policy falls in line with a life insurance policy. The deductibles are not considered a health insurance policy, and are not deductible on Schedule A. In the event of a claim, the funds are not taxable either. So, you loose an arm in a car wreck and receive $100K from Aflac. You pay no tax on the $100K. 😉

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[Kimboroni]

My thinking is that if it were deductible, then it already would have been done on a pre-tax basis by the employer, since those run kind of parallel.

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[wr8280]

I concur. In fact, normal deductible group life term insurance through an employer 50,000 and under becomes a taxable fringe benefit if there is an accidental death and dismemberment aspect to the policy. I guess they don't want to incentivize accidental death in the workplace 🙂

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[Tax lady]

The client does not have this policy through their employer. They purchased it separately. I don't understand why someone who has this benefit through their employer would have it pre-tax but someone who purchases the policy separate (because their employer does not offer it) can't get a deduction on Sch. A?

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[juuustin]

It is neither deductible, nor taxable. Payments from a short-term disability plan are simply excluded from income, like per diems and employer reimbursed business expenses.

I know this because my wife has a plan at her work and I have read the literature.

To address your last post, they wouldn't need a deduction because it is not being reported as income anywhere. Hence, nothing to deduct from.

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[Anonymous]

Juuustin is correct !!

[san4596]

Tax Lady – I have Aflac, and they have some policies that qualify for pre-tax/sch. A. Life insurance is after-tax because it is not deductible, and accident policies fall under this as well. It does not matter if you buy through an employer or not. However, Aflac does have a policy that replaces your income due to medical leave that would be deductible, since it replaces 50%-80% W2 wages while off work. In that case, distributions are taxable and premiums are deductible.

wr8 – employers are allowed to pay the premiums of life insurance plans for their employees up to a $50K policy limit without it being counted as taxable income to the employee. If the employee dies, the $50K is still non-taxable income to the beneficiary.

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[Tax lady]

Ok, thanks everyone for your input!

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