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Under what condition are group disability income benefits received by an employee NOT taxable as income?

  1. When the benefits received are equal or less than the employee's percentage of the contribution.

  2. When the employer makes all the premium payments.

  3. When the employee is 59 1/2.

  4. When the amount of the benefit is equal or less than the amount contributed by the employer.

The correct answer is: When the benefits received are equal or less than the employee's percentage of the contribution.

Group disability income benefits are typically subject to taxation depending on the arrangement of premium payments between the employer and the employee. The correct condition, indicating when these benefits are not taxable as income, is when the benefits received are equal to or less than the employee's percentage of the contribution. In this situation, if an employee personally contributes towards the premium for their disability insurance policy, any benefits they receive that do not exceed the amount they contributed are not taxable. This is based on the principle that income derived from sources where the employee has already taxed their contributions is not subject to further taxation. Therefore, if an employee covers a portion of the premium, they can receive benefits up to that amount tax-free. The other conditions provided do not directly address the employee's contribution or the tax implications related to it, which is fundamental in determining taxability for disability benefits.