How are disability income benefits taxed when the employer paid the entire premium?

Why A is correct

The tax treatment of disability benefits follows who paid the premiums: if the employer paid all premiums, the benefits the insured receives are taxable as ordinary income, because the insured never paid tax on those premium dollars and the employer's premium payments were not includible in the employee's income. If the insured paid the premiums with after-tax dollars, the benefits are received free of federal income tax. If premiums are split between employer and employee, the benefits are taxable in proportion to the employer-paid share, so the source of the premium is the decisive question.

Why the other options are wrong

• B) Benefits are tax-free only when the insured paid the premiums with after-tax dollars, not when the employer paid them, so complete tax exemption is wrong here. 核保与定价依据的是与风险直接相关的因素，其他信息不能作为依据。 加州法律禁止将与承保风险无关的因素用于定价或拒保。 核保与定价依据的是与风险直接相关的因素，其他信息不能作为依据。
• C) The interest-portion rule applies to life insurance settlement options and annuities, not to disability income benefits, which are taxed as ordinary income when the employer paid. 伤残定义的各项标准直接决定给付资格，考生应掌握其判定要点。 各类伤残定义的差异决定了是否触发给付，须按政策条款逐项核对。 伤残定义的各项标准直接决定给付资格，考生应掌握其判定要点。
• D) Disability benefits are ordinary income when taxable, never capital gains, because they replace wages rather than gain on an investment asset. 各类伤残定义的差异决定了是否触发给付，须按政策条款逐项核对。 伤残定义的各项标准直接决定给付资格，考生应掌握其判定要点。 各类伤残定义的差异决定了是否触发给付，须按政策条款逐项核对。 伤残定义的各项标准直接决定给付资格，考生应掌握其判定要点。 各类伤残定义的差异决定了是否触发给付，须按政策条款逐项核对。 伤残定义的各项标准直接决定给付资格，考生应掌握其判定要点。 各类伤残定义的差异决定了是否触发给付，须按政策条款逐项核对。 伤残定义的各项标准直接决定给付资格，考生应掌握其判定要点。

Memory hook

Who paid the premium calls the tax shot. Employer paid = benefits taxed. You paid = benefits free.