Taxability of Benefits
GROUP LIFE INSURANCE:
Any premiums paid by the employer for an employee’s Group Life Insurance are considered taxable. Therefore, the premiums paid by the employer on behalf of an employee must be shown on the employee’s T4 as other income. Death benefits are non-taxable to the recipient.
The same rules apply as with Group Life Insurance.
ACCIDENTAL DEATH AND DISMEMBERMENT and GROUP CRITICAL ILLNESS:
Premiums paid by an employer for group Accidental Death & Dismemberment Insurance (AD&D) and group Critical Illness Insurance (CI) will be considered taxable income to the employee. Premium contributions made by an employer after March 28, 2012, for group AD&D and CI plans in place on or after January 1, 2013, will be considered a taxable benefit, and must be included as income for the year in which the contributions are made. Benefits are non-taxable to the recipient.
HEALTH (INCLUDING VISION CARE) AND DENTAL:
Premiums paid for these benefits can be 100% employer-paid and no taxable benefit is conferred upon the employee.
Employee contributions to premiums for Health, Vision Care and Dental do qualify for a tax credit as a medical expense on their personal income tax returns if the total expenses paid are more than 3% of the individual’s annual net income.
SHORT & LONG TERM DISABILITY:
These benefits can be set up in one of two ways: taxable or non-taxable.
- Taxable: If the benefit is set up as taxable, premiums paid by the employer do not confer a taxable benefit upon the employee. However, when an employee becomes disabled, the benefits received from the insurance company are deemed taxable income.
- Non-Taxable: If the benefit is set up as non-taxable, the employee should pay for the entire premium. If an employee becomes disabled, any benefit received would be non-taxable.
MEDICAL SERVICES PLAN (MSP):
Any premiums paid by the employer for MSP are considered taxable.
For all benefits, any premiums paid by the employer are tax deductible to the business. Any premiums paid by the employee are paid out of after-tax dollars (i.e. these deductions do not reduce an employee’s taxable income).