medium · Certified Financial Planner Professional Conduct
The Holm household includes Marcus, who earns 250,000 as a software architect. His employer pays the full premium for a group long-term disability policy providing 60% of salary.
If Marcus becomes disabled in 2026, how will the benefits be taxed?
- The benefits will be fully taxable to Marcus as ordinary income.
- The benefits will be tax-free because they are for disability.
- Benefits will be 50% taxable and 50% tax-free.
- Only benefits exceeding 85% of his prior income will be taxable.
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