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Gross Income Tax
Employee Accident or Health Insurance Exclusion
N.J.A.C. 18:35-2.3
18:35-2.3 Employee accident or health insurance 1. Temporary disability benefit payments required to be
exclusion from taxable gross income made under the State Plan which is administered by the
Bureau of State Plan Disability Benefits under the New
(a) Amounts received by an employee through an accident or Jersey Disability Law;
health insurance plan for personal injuries or sickness are not
subject to tax under the New Jersey Gross Income Tax Act. 2. Temporary disability benefit payments required to be
made to employees under a company’s private plan
(b) Amounts received by an employee on account of personal established pursuant to New Jersey law in lieu of the
injury or sickness qualify for exclusion from taxable gross income State Plan described in (f)1 above and which has been
when received under the provisions of an employee accident or approved by the Bureau of Private Plan Disability Bene-
health insurance plan which satisfies the following requirements: fits, Division of Unemployment Insurance and Disability
1. The payments must be compensation for wage loss which Insurance; and
results from absence due to injury or sickness of the em- 3. Payments made to employees for personal injuries or
ployee; and sickness under a health or accident insurance policy by a
2. The payments must have a requisite certainty under an commercial insurance company.
enforceable contractual obligation under the plan (see (e) All taxpayers will be required to file with their annual New
(g)
below); and Jersey Gross Income Tax Return a claim form furnished by the
3. The payments must not relate to sick leave wage contin- Director for the exclusion of any amounts received by them as
uation, the taking of which is largely discretionary and the an employee through an accident or health insurance plan for
payments are made regardless of the reason for absence personal injuries or sickness which meet all the conditions for
from work. exclusion from taxable gross income under (f) 1, 2 and 3 above.
(c) The exclusion from taxable gross income applies to payments Examples:
to employees under a health or accident insurance plan regard- An employee of Company X is allowed 12 vacation days and 15
i.
less of whether insurance coverage is with a commercial insur- sick days for the calendar year. The employee uses 12 vacation
ance company to which premiums are paid by both employees days and 10 sick days in the calendar year for which he or she
and employer or solely by the employer; or whether insurance receives his or her regular wage payment, regardless of the cause
coverage is provided by an employer’s self-insured plan for which for his or her absence. The amounts received by the employee
no insurance premiums are paid by the employees. in the calendar year for the 12 vacation days and 10 sick days
(d) The exclusion from taxable gross income applies to payments are subject to tax as wage and salary income to the employee
required to be made to employees under the State mandated tem- and the employer must also withhold Gross Income Tax on such
porary disability benefit plan pursuant to the New Jersey Tempo- payments.
rary Disability Law (N.J.S.A. 43:21-25, et seq.). Payments which Company Y has a self-insured disability plan for its employees
ii.
are excludable from taxable gross income include temporary who are absent from work because of accident or sickness. The
disability benefit payments required to be made under the State plan is fully funded by the employer company and the employees
Plan which is administered by the Bureau of State Plan Disability make no contribution to the plan. Payment for the full amount of
Benefits under the New Jersey Disability Law. Exclusion from tax- wages is made to disabled employees absent from work, on the
able gross income also includes payments required to be made to eighth calendar day. Payment for the initial seven days to the
employees under a company’s private plan established pursuant covered employee is discretionary with the company employer
to New Jersey law in lieu of the State Plan described in the pre- under the plan. The amount received by the absent employee
ceding sentence and which has been approved by the Bureau of because of his or her disability is excludable from taxable gross
Private Plan Disability Benefits, Division of Unemployment Insur- income as health or accident insurance after the initial seven days
ance and Disability Insurance. of absence but is subject to withholding tax. Any amount received
(e) Where payment to employees under the health or accident by the employee as payment for the seven initial days is subject
insurance plan is largely discretionary with the employer, such as to tax as wage and salary income to the employee and is also
during the initial period (for example, first seven days), the exclu- subject to withholding tax.
sion from taxable gross income does not apply. Such payments Employee C receives a payment from the New Jersey Dis-
iii.
to the employee are subject to tax as wages and salaries. In ability Benefit Fund during an absence from work because of
order for a wage loss payment made under an accident or health temporary disability resulting from illness. Both the employee and
insurance plan to be excludable from taxable gross income, the employer have contributed to the disability benefit fund. The total
payment to the employee must have a requisite certainty under an amount received by the employee from the New Jersey Disabil-
enforceable contractual obligation. ity Benefit Fund is excludable from taxable gross income as a
(f) Withholding of the gross income tax shall be required on all payment for health or accident insurance and is not subject to
payments of wages and salaries made to an employee by an withholding tax.
employer. The withholding of the tax is required even though such Employee D is absent from work because of illness and
iv.
payments meet all the conditions for exclusion from taxable gross receives from the X Insurance Company the full amount of his or
income as made through an accident or health insurance plan for her wages during the period of his or her absence from work. The
personal injuries or sickness under this section. The only excep- payment was made from a health or accident insurance policy to
tions for the withholding of tax shall be for the following: which only the employer has contributed. The amounts received
by the employee are excludable from taxable gross income as
health or accident insurance and are not subject to withholding
tax.
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