Test Answers on Chapter 18

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Generally, how are health insurance policies taxed? If premiums are tax-deductible, benefits are taxed as income.** If premiums are tax-deductible, benefits are also tax-deductible. Premiums and benefits are not taxed. None of the Above
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What are the tax consequences of individual Medicare supplement policy premiums and long-term care premiums? Premiums are only tax-deductible if a person’s unreimbursed medical expenses exceed 10% of his adjusted gross income** None of the Above Premiums are never tax-deductible Premiums are only taxable if an individual’s unreimbursed medical expenses exceed 10% of his adjusted gross income
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Benefits for individual medical expense, LTC and Medigap policies are: Taxable Only taxed if an individual’s unreimbursed medical expenses exceed 7.5% of his adjusted gross income Only taxed if an individual’s unreimbursed medical expenses do not exceed 7.5% of his adjusted gross income Not taxable***
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For Buy-Sell medical policies, what are the tax implications? Premiums are not tax-deductible and benefits are taxable Premiums are tax-deductible and benefits are tax-free Premiums are not tax-deductible, but benefits are received tax-free** Premiums are tax-deductible, but benefits are taxable
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Wild Bill’s Bowling Alley provides a group disability income policy to its employees. Employees pay a portion of the premiums. Which of the following is true? The portion of premiums paid by Wild Bill are not tax-deductible Benefits are never taxable Benefits are taxable to employees based on the portion of premiums paid by Wild Bill*** Premiums are completely tax-deductible for Wild Bill and all employees
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Buster’s Flashlight Company has a group disability income policy as an employee benefit. Buster pays all employee premiums. Which of the following statements is true? Benefits are taxable*** Benefits are not taxable Benefits are only taxed if an individual’s unreimbursed medical expenses do not exceed 7.5% of his adjusted gross income Benefits are only taxed if an individual’s unreimbursed medical expenses exceed 7.5% of his adjusted gross income
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Jan’s sushi restaurant has a business overhead expense policy. What is the tax treatment of premiums and benefits? Premiums and benefits are tax-free. Benefits are tax-free. Premiums and benefits are taxed. Premiums are tax-deductible.***
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ABC employer pays the entire cost of the group health insurance premiums. Which of the following is true regarding the taxation of premiums and benefits? Premiums are paid with after-tax dollars and benefits are taxable as ordinary income. Premiums are tax-deductible to the employer and benefits are not taxable to the employees.*** Premiums are tax-deductible to the employer and benefits are taxable to the employees. Premiums are not tax-deductible to the employer and benefits are tax-free to the employees.
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Which of the following is true regarding medical expense policies owned by sole proprietors? Premiums are tax-deductible and benefits are received tax-free** It is illegal for sole proprietors to purchase medical expense policies Premiums are tax-deductible, but benefits are taxable Premiums are not tax-deductible, but benefits are received tax-free
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All of the following business insurance plans have tax-free benefits EXCEPT: Key person disability income. Overhead.**** Buy-sell policy. Disability reducing term insurance.
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Which of the following statements is true regarding key person disability income insurance? Premiums are tax-deductible, but benefits are taxable Premiums are not tax-deductible and benefits are taxable Premiums are tax-deductible and benefits are tax-free Premiums are not tax-deductible, but benefits are received tax-free***
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Ben has an individual disability income policy. Which of the following is true? Premiums are not tax-deductible, but benefits are received tax-free*** Premiums are tax-deductible and benefits are tax-free Premiums are tax-deductible, but benefits are taxable Premiums are not tax-deductible and benefits are taxable
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What happens when payment of group disability income policy premiums are shared between the employer and employees? Benefits are not taxed. Benefits are 100% taxable. Benefits are only taxed up to an amount based on the portion of premiums paid by the employer.*** Benefits are only taxed up to an amount based on the portion of premiums paid by the employee.
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Stan’s Job Placement Services provides a group disability income policy to all employees. Premiums are paid in part by the employees. Of the following statements, which is true? None of the Above Benefits are not taxable Premiums are 100% tax-deductible Benefits are taxable to employees based on the amount of premiums paid by Stan***
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ABC employer pays the entire cost of the group health insurance premiums. Which of the following is true regarding the taxation of premiums and benefits? Premiums are tax-deductible to the employer and benefits are taxable to the employees. Premiums are paid with after-tax dollars and benefits are taxable as ordinary income. Premiums are not tax-deductible to the employer and benefits are tax-free to the employees. Premiums are tax-deductible to the employer and benefits are not taxable to the employees.***
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What are the tax consequences of medical expense policies owned by sole proprietors? Sole proprietors cannot purchase medical expense policies Premiums may be deducted from taxes, but benefits will be taxed Premiums are not tax-deductible, but benefits are received tax-free Premiums are tax-deductible and benefits are received tax-free****
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Jan’s sushi restaurant has a business overhead expense policy. What is the tax treatment of premiums and benefits? Premiums are tax-deductible.**** Premiums and benefits are tax-free. Benefits are tax-free. Premiums and benefits are taxed.
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Jenny’s employer provides a short term disability income policy to all employees. Her employer pays 60% of the premiums. When Jenny is disabled, what portion of the benefits will be taxable to her? 0% 40% 100% 60%****
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For an employer-sponsored group disability income policy: premiums are always paid with after-tax dollars and benefits are received tax-free. premiums paid by the employer are tax-deductible as a business expense.*** benefits are 100% taxable if the employee pays a portion of the premiums. premiums are always paid with pre-tax dollars and benefits are treated as taxable income.
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Which of the following statements is true regarding business overhead policies? Premiums are tax-deductible, but benefits are taxable*** Premiums are not tax-deductible and benefits are taxable Premiums are not tax-deductible, but benefits are received tax-free Premiums are tax-deductible and benefits are tax-free
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