Are Disability Income Benefit Payments Subject to FICA and FUTA Tax?

Payments made to disabled employees by either an employer or an insurer are subject to social security tax (FICA) and federal unemployment tax (FUTA) for the first six months after the last month in which the employees worked for their employers. After six months, such payments are exempt from social security and federal unemployment tax. However, if the employees contributed to the plans that pay the benefit payments, the portion of such payments attributable to the employees’ contributions is not subject to social security tax.

Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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