Disability Claim Taxation (Benefit Tips ® - © 2012)
Claim payments to disabled employees are considered non-taxable income if the employee pays the entire cost of insurance. However, if the employer pays any portion of cost then claim payments are fully taxable. If both the employer and employee contribute toward the cost of disability insurance then disability claim payments are taxable but the disabled employee’s contribution toward the cost can be deducted for taxation purposes. For this reason, employers either pay 100% of the cost or nothing.
Since employer paid disability insurance is taxable, the coverage amount is typically 66.7% or 75% of earnings.
When employees pay the cost of disability insurance, either through direct payroll deductions or by having the cost added to their monthly taxable income, the coverage amount is typically 60% or graded to reflect after-tax earnings. Unfortunately, most disability policy does not consider the taxability of claim payments when reducing claim payments by sources such as CPP. A 60% non-taxable benefit is often reduced by the full amount of taxable income instead of the after-tax portion. A similar problem exists when a claimant mixes non-taxable partial disability claim payments with taxable earnings and bumps into the 100% of pre-disability earnings limit.
Drug Coverage in New Brunswick (Benefit Tips ® - © 2014)
Update: November 2014
The mandatory nature of this dictum has been repealed and compliance will be voluntary.
Situation: December 2013
New Brunswick has proposed legislation that would extend their provincial drug plan to all residents rather than just low-income seniors and those on social assistance. Employees with equivalent private or employee benefit coverage may opt out of the public universal drug plan when it becomes mandatory April 1, 2015.
The 20% of residents who do not have drug coverage will be forced to pay a $67-$167 monthly premium for the public plan depending on their income. The residents that have drug coverage through their employer that does not satisfy the requirements of the public universal drug plan will lose their drug, dental, vision and medical benefits and be forced to join the public plan.
The Prescription and Catastrophic Drug Insurance Act will require employers to either provide drug coverage equivalent to the public universal drug plan or not provide any health benefits (drug, dental, vision, medical) to New Brunswickers.
It is your choice whether to give your New Brunswick staff the plan that their politicians have designed or not. Unfortunately, they have raised the stakes to an all-or-nothing gambit.
Many small businesses have taken control of their benefit costs by putting limits on each component of their plan. Others, disillusioned with insurance, have eliminated all inflation risk by moving to a health spending account (www.healthspending.com). These employers will likely exclude their New Brunswick staff just like they excluded their Quebec staff back in 1997 when a similar requirement was introduced by RAMQ.
Employers who would like to provide health benefits for their New Brunswick staff will need to adjust their plan to satisfy the provincial requirements of unlimited drug coverage, no any cohabitation requirement for spouses and no age limit for employees or spouses.
Reassessing the goals and strategies of your benefit program is the first step in determining your response to any change.