Tax Free Disability Benefits

Transcription

1 Tax Free Disability Benefits Disclaimer: The information contained in these materials, written or oral, is provided for information purposes only. Neither Proskauer Rose, L.L.P., nor Assurant Employee Benefits represents that the information provided in these materials contains a comprehensive discussion that will meet the needs of every employer. The information provided herein is not and should not be construed as tax or legal advice. Specific questions relating to an employer s situation should be addressed with a qualified employee benefits counsel or advisor. The materials are not and should not be deemed to be in any way made available as an inducement to establish or maintain a business relationship with Assurant Employee Benefits. These materials, written and oral, are the sole and exclusive property of Union Security Insurance Company. Any unauthorized use, reproduction, or distribution of these copyrighted materials is strictly prohibited without the express, prior written consent of Union Security Insurance Company. Assurant Employee Benefits is the brand name for insurance products underwritten and issued by Union Security Insurance Company. In New York, insurance products are underwritten and issued by Union Security Life Insurance Company of New York which is licensed in New York and has its principal place of business in Syracuse, NY.

2 About Assurant Employee Benefits Assurant Employee Benefits is one of the leading providers of Life, Dental, and Disability Insurance in the country currently insuring over 40,000 companies and over 63,000 lines of coverage. AEB specializes in handling the customized needs of employers under 500 lives. Home Office in Kansas City, MO. Nearly 100 years of insurance experience. A leader in group disability insurance since 1962 Financially strong with over $24 Billion in assets and $8 billion in annual revenue. A Fortune 500 Company and a member of the S&P 500 Index. Traded on the NYSE under the symbol AIZ 2

3 About Proskauer LLP Proskauer is one of the country s oldest and largest law firms 130 years of continuous service as a leading law firm More than 700 attorneys in the world s major cities, including: NY, Boston, Chicago, LA, DC, New Orleans, Miami, London and Paris Over 65 employee benefits and executive compensation attorneys in offices located throughout the United States 3

4 Employee Benefits and Executive Compensation Group Broker Representation Assurant MVP Compliance Law Firm Represent over 45 independent brokers/consultants in welfare plan/retirement plan space across the country Leader in retainer-based services to consulting groups Developer of innovative compliance approaches that permit independent consultants and brokers compete with large national and regional houses 4

5 Peter Marathas Human Resources/Benefits Professional Background 15+ years practicing exclusively in ERISA, Benefits, EC Personal counsel to some of the largest independent brokers in the country Chambers Ranked National Best Lawyer Nationally recognized speaker on employee benefits (annually speaks at between 20 and 30 seminars per year) Quoted or published in major publications including LA Times, Chicago Tribune, Boston Globe, NY Times, Fortune Magazine and similar publications 5

6 Tax Free Disability Benefits Enhancing the Value of Income Protection for Your Clients. Peter Marathas, Jr.

7 Exceed Customer Expectation Reduce employer premium by up to 25% Increase the net benefit of many employees 7

8 Revenue Ruling : The IRS Provides Path to Tax Certainty and Employee Choice Three Year Rule (the long and winding road to tax freedom) RR (the Autobahn to tax free benefits) 8

9 Pre-Road Trip Tax Basics In the U.S., anything of value provided to an employee by an employer is taxable, unless there is an exemption If premium is paid by employer on employee s behalf, disability benefits are considered taxable income when received & subject to withholding, which reduces the benefit If premium is paid with After-Tax Dollars, all or part of benefit may not be taxable depending on: Timing of receipt of the benefit or Whether plan was designated as RR

10 Three Year Rule (The long and winding road to tax freedom) Three-Year Rule requires look back to determine percentage of premium paid for by the employer during the three policy years prior to the calendar year in which the disability occurs Determines %, if any, of taxable benefit Employer-paid premium during three year period Total premium paid for that same period % of employer-paid premium for three-year period = % of taxable benefit 10

11 Three Year Rule (The long and winding road to tax freedom) % applies to all disability benefits received during that disability period Example: Employer ABC pays 100% of premium & 2010 ABC begins to add premium to employees income Employee A s disability starts in 2010, benefit is 100% TAXABLE A s disability starts in 2011, benefit is 66.67% TAXABLE A s disability starts in 2012, benefit is 33.33% TAXABLE A s disability starts in 2013, benefit is 100% NON TAXABLE 11

12 Three Year Rule (The long and winding road to tax freedom) Union Security Insurance Company

13 RR (The Autobahn to Tax-Free Benefits) Basics of RR Arrangement Disability Plan employer designates as being a Arrangement Employees may choose whether to pay premium with After-Tax Dollars or have employer pay premium on their behalf If After-Tax Dollars are used to pay premium, the disability benefit is always received tax-free 13

14 RR (The Autobahn to Tax Free Benefits) Basics of RR Arrangement Example: Employer ABC pays 100% of premium and for 2010 ABC adopts RR Arrangement and Employee pays 100% of premium with After-Tax Dollars: Employee A s disability starts in 2010, benefit is 100% NON TAXABLE 14

15 RR (The Autobahn to Tax Free Benefits) Key Rules of the Road: RR Arrangement may be adopted only by an employer if, in the year preceding the year in which the designation is made, premium: Is paid 100% by the employer on behalf of its employees; or Paid for with pre-tax employee dollars under the employer s Section 125 plan 15

16 RR (The Autobahn to Tax Free Benefits) Key Rules of the Road: Premium must be paid either by the employee (with After- Tax Dollars) or by the employer (on a taxable basis), but not by both Note that employer may use gross-up approach to achieve After-Tax Dollars treatment 100% of employees not required to pay premium with After- Tax Dollars 100% of employees must be given choice Designation must be made prior to start of plan year 16

17 Questions? IRS Circular 230 Notice: To ensure compliance with requirements imposed by IRS and other taxing authorities, we inform you that any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purposes of (i) avoiding penalties that may be imposed on any taxpayer, (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein and (iii) you should seek advice based on your particular circumstances from an independent advisor. 17