Question & Answer: Two years ago, Marvin Milhouse age 35 received a salary of $70,000 from his employer industrial Corp. In ad…..

Two years ago, Marvin Milhouse age 35 received a salary of $70,000 from his employer industrial Corp. In addition, industrial Corp paid the following insurance premium for Marvin as part of plans for insurance coverage adopted by it covering substantially all its employees:

$ 400 Premiums for $60,000 of group term life insurance

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$5,500 Premiums for a Blue Cross-Blue Shield Medical insurance coverage for Marvin and his family

$1,200 Premiums for a policy of disability insurance assuring Marvin of certain monthly payment in the event of disability caused by accident or illness Should Marvin have included any of the insurance premiums in his gross income?

In the middle of last year, Marvin sustained a serious back injury while skiing in Chile. Blue Cross-Blue paid his medical expenses of $9,400 . Because he was disabled from working throughout the remainder of last year, the disability insurance carrier paid Marvin $1,000 per week during the last 20 weeks of last year. The payment did not begin until the sixth week of Marvin’s disability. Marvin’s regular pay is about $1,350 per week

Should Marvin have included any of these amounts in gross income for last year?

Marvin died early this year, and his wife received the $60,000 in group term life insurance proceeds.

Must she include that amount in her gross income for this year?

Expert Answer

 

In First Case, All Insurance premiums paid by Industrial Corp. for benefit of Marvin and all other employees of it’s company are consider as “perquisites” are these are always taxable in the hand of company and not the employee. So, Inclusions of these premiums paid for benefit of Marvin by Company should NOT be included in his income.

Now considering the Medical expense paid by Blue Cross blue are just reimbursement of expense for which premium already paid by company. So, it’s not come under the definition of “INCOME” of the Marvin.

BUT Payment received from disability insurance as regular payment for compensating Salary not received during disability period will be consider as Income in the hand of Marvin as like salary received for the period.

ALSO, Compensation received from Insurance company to the wife of Marvin after his death, same will be included in her Income of that year, as it is received by her during the year.

 

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