Taxability of Disability Benefits
Federal and State Income Taxes: When an employee becomes disabled and receives benefits, the percentage of the premium paid by the employer (if any) determines the percent of the benefit that is taxable. If the employer pays 100% of the premium, any disability payment made to an employee is 100% taxable. If the employer pays none of the premium, then the benefit paid to the employee is not taxable.
Hartford Life Insurance (HLI) Tax Services
For all fully insured STD and LTD policies (where The Hartford is issuing benefit payments), the employer must complete a HLI Tax Services Agreement (TSA). The TSA must be completed whether or not the employer is electing to handle tax reporting services or electing the HLI service, regardless of the taxability of the benefit amount. There are several reasons the TSA is required. First, HLI needs to document the plan sponsor’s election. Second, HLI needs to legally pass the payroll related tax responsibility such as FUTA and SUTA back to the employer. And third, even non-taxable benefits must be reported on the W-2.
Since the TSA reflects what was sold, The Hartford must complete the form before it is sent to the employer. Since we rely on the information provided to us by the employer, limited changes can be made to our standard agreement once the services are elected.
HLI periodically updates the TSA and new completed forms will be required. CBIA will contact you if a new TSA is needed.
To review the list of standard tax services that HLI performs, please refer to the following Sample Tax Service Agreements:
For STD you must report and deposit the employer share of any FICA taxes due on the benefits paid under the plan to your employees even if you elected to have HLI handle the other standard tax services. (Note: Part C, FICA Match Service on the sample agreement is not available to CBIA groups and must be declined on the agreement.)