Disability Income Coverage

<div class="Section1">Yes. The IRS has ruled that premiums paid on an overhead expense disability policy, a special type of contract that reimburses professionals or owner-operators for overhead expenses actually incurred during periods of disability, are deductible as a business expense and the proceeds are taxable.<a href="#_ftn1" name="_ftnref1">¹</a> The ruling relates to self-employed individuals.<div class="Section1"><br /> <br /> Premiums paid on standard personal disability insurance are not deductible as a business expense but the proceeds are tax-exempt as compensation for personal injuries or sickness ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="382">382</a>).<a href="#_ftn2" name="_ftnref2">²</a> This is true even though a taxpayer intends to use the benefits to pay overhead expenses during periods of disability.<a href="#_ftn3" name="_ftnref3">³</a> (<em>See</em> Q <a href="javascript:void(0)" class="accordion-cross-reference" id="377">377</a>.)<br /> <br /> </div><div class="refs"><br /> <br /> <hr align="left" size="1" width="33%"><br /> <br /> <a href="#_ftnref1" name="_ftn1">1</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 55-264, 1955-1 CB 11.<br /> <br /> <a href="#_ftnref2" name="_ftn2">2</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 55-331, 1955-1 CB 271; Rev. Rul. 70-394, 1970-2 CB 34.<br /> <br /> <a href="#_ftnref3" name="_ftn3">3</a>.&nbsp;&nbsp;&nbsp;&nbsp; Rev. Rul. 58-480, 1958-2 CB 62; <em>Blaess v. Commissioner</em>, 28 TC 710 (1957); <em>Andrews v. Commissioner</em>, TC Memo 1970-32.<br /> <br /> </div></div><br />

<div class="Section1"><br /> <br /> Yes. A qualified profit sharing plan may provide health insurance benefits for its employee-participants within limits ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3830">3830</a>). A qualified pension plan may provide disability pensions, but will not qualify if it provides regular health insurance benefits for active employees. A qualified pension plan may provide health insurance benefits for retired employees ( Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3830">3830</a>). For tax consequences to employees, see Q <a href="javascript:void(0)" class="accordion-cross-reference" id="394">394</a>&nbsp;and Q <a href="javascript:void(0)" class="accordion-cross-reference" id="3941">3941</a>.<br /> <br /> </div><br />