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Disability premiums paid by DC plans are deductible

Disability insurance policies that meet certain conditions will be treated by the IRS as plan investments and any proceeds received are treated as a return on that investment as opposed to plan contributions.

By Marcia S. Wagner | Updated on October 08, 2014

The IRS has issued final regulations that clarify the tax treatment of premium payments paid by qualified defined contribution plans for accident and health insurance where such payments are charged against participants’ plan accounts. 

Included within the final regulations is a new rule governing the tax treatment of premiums paid by defined contribution plans (and charged against participants’ account) for disability insurance that provides replacement plan contributions when a participant becomes disabled.

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