Gross Up Disability Plans

What is a gross up disability plan?

Gross up disability plans are set up as basic (employer paid) Short Term or Long Term Disability plans, and look the same in terms of plan details as all other basic STD or LTD policies. What makes them different is that the employer-paid premium is considered taxable income to the employee so that when the benefit is paid through a claim, that benefit is not considered taxable income to the employee.

With traditional STD and LTD policies where the premium is paid by the employer, claims that are paid to the employee through the policy are considered taxable income.

Examples

Example 1:

George's company has a Gross Up STD/LTD policy. They pay his $10 per month basic STD premium. Since it is a gross up policy, George would see a taxable line item on his paystubs of $10/ month . George pays the tax on that $10 as if it were money paid to him (taxable income).

George files a claim for STD, and is paid by the insurance carrier. These funds paid to him are not taxable income, and he is able to pocket the full claim amount.

Example 2:

Joe's company has a traditional employer-paid STD/LTD policy. Joe's company has paid his $10 per month basic STD premium and Joe hasn't paid any tax on that premium. In fact, Joe may not even be aware of what his STD premium is, he just knows that his employer is paying it.

Joe files a claim for STD, and is paid by the insurance carrier. All of the funds paid to Joe are considered taxable wages, and he's responsible to make sure he declares it as income and pays taxes on those funds. Most employers will coordinate these tax payments in their payroll system when the insurance carrier notifies the employer of claims that have been paid every quarter.

Traditional or gross up STD/LTD plans appear the same way in terms of benefits details in Zenefits. Contact your insurance broker if you have any questions regarding your STD/LTD policy, and if it is structured as a gross up policy. Gross up policy options are only available for STD and LTD, not life insurance.

If a group policy is written as a gross up policy, administrators need to contact their payroll provider to coordinate proper employee taxation of the premium directly in their payroll system. Zenefits does not currently support coordinating payroll taxation of gross STD and LTD benefits.