The tax implications change depending on which benefit it is and who pays the premium.
Below is a chart that shows the tax impact of each benefit if the company pays the premium versus if the employee pays the premium.
|Benefit||If company pays premium, is premium taxable to the employee?||If company pays premium, is benefit taxable to the employee?||If employee pays premium, is benefit taxable to the employee?|
If the company pays the premium for life insurance, accidental death & dismemberment, dependant life insurance or critical illness, the premium amount should be allocated as a taxable benefit on the employees’ T4 each year.
If the company pays even $1 of the premiums for long-term disability (LTD) or short-term disability (STD), the benefit amount is considered taxable income to the employee. If the employee pays the full premium including the tax, this is not considered taxable income.
STD and LTD are not considered a taxable benefit on the employees’ T4.
Extended health and dental benefits can be paid by the company without any taxable impact to the employee and this is also true if there is cost-sharing of these benefits with the employee.
Below is an example on how the different benefits would be taxed.
I.e. An employee is eligible for $2000 a month on LTD
|Employee paid LTD premium throughout active employment||Employee did not pay LTD premium|
|They receive the full $2000 a month when on LTD||They are charged income tax on the $2000 each month leaving the employee with a take home amount of $1800 (approx. number for example sake)|
Life & AD&D premium
|Employee pays Life premium||Employee does not pay Life|
|Nothing needs to be done||On the T4, you will need to input this as a taxable income. I.e. employee salary is $40,000 a year; life and AD&D premium per month is ($5.16+$2.20) x 12 months = $88.32/year Total taxable income = $40,088.32|
These amounts should be updated yearly to account for salary changes to employees and the price changes of the benefits.
Disclaimer: Valid as of January 2021 and is subject to change. Please ask your account for more details of how this applies to your plan.