When are group disability benefits considered tax-free to the insured?

Group disability benefits are considered tax-free to the insured when the recipient pays the premiums. This is because, under IRS guidelines, benefits received from a policy for which the insured has contributed premiums are not included in gross income and thus are not subject to income tax.

When the employee pays for the premiums, they are using their after-tax dollars, making the benefits received tax-free upon claim. On the other hand, if the premiums are paid by the employer or through pre-tax contributions, the benefits would typically be taxable to the employee when received. This is an essential aspect of understanding the tax implications of group disability benefits and how the method of premium payment influences taxation on the benefits received.