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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 All taxpayers will be required to file with their annual New
(g)
N.J.A.C. 18:35-2.3 (e)); 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 year 1982. The employee uses 12 vacation days
ance company to which premiums are paid by both employees and 10 sick days in 1982 for which he receives his regular wage
and employer or solely by the employer; or whether insurance payment, regardless of the cause for his absence. The amounts
coverage is provided by an employer’s self-insured plan for which received by the employee in 1982 for the 12 vacation days and
no insurance premiums are paid by the employees. 10 sick days are subject to tax as wage and salary income to the
(d) The exclusion from taxable gross income applies to payments employee and the employer must also withhold Gross Income Tax
required to be made to employees under the State-mandated on such payments.
temporary disability benefit plan pursuant to the New Jersey Company Y has a self-insured disability plan for its employees
ii.
Temporary Disability Law (N.J.S.A. 43:21-25, et seq.). Payments who are absent from work because of accident or sickness. The
which are excludable from taxable gross income include tempo- plan is fully funded by the employer company and the employees
rary disability benefit payments required to be made under the make no contribution to the plan. Payment for the full amount of
State Plan which is administered by the Bureau of State Plan wages is made to disabled employees absent from work, on the
Disability Benefits under the New Jersey Disability Law. Exclusion eighth calendar day. Payment for the initial seven days to the cov-
from taxable gross income also includes payments required to be ered employee is discretionary with the company employer under
made to employees under a company’s private plan established the plan. The amount received by the absent employee because
pursuant to New Jersey law in lieu of the State Plan described in of his disability is excludable from taxable gross income as health
the preceding sentence and which has been approved by the Bu- or accident insurance after the initial seven days of absence but is
reau of Private Plan Disability Benefits, Division of Unemployment subject to withholding tax. Any amount received by the employee
Insurance and Disability Insurance. as payment for the seven initial days is subject to tax as wage and
(e) Where payment to employees under the health or accident salary income to the employee and is also subject to withholding
insurance plan is largely discretionary with the employer, such as tax.
during the initial period (for example, first seven days), the exclu- Employee C receives a payment in 1982 from the New Jersey
iii.
sion from taxable gross income does not apply. Such payments Disability Benefit Fund during an absence from work because of
to the employee are subject to tax as wages and salaries. In temporary disability resulting from illness. Both the employee and
order for a wage loss payment made under an accident or health employer have contributed to the disability benefit fund. The total
insurance plan to be excludable from taxable gross income, the amount received by the employee from the New Jersey Disabil-
payment to the employee must have a requisite certainty under an ity Benefit Fund is excludable from taxable gross income as a
enforceable contractual obligation. payment for health or accident insurance and is not subject to
(f) Effective June 1, 1982, withholding of the Gross Income Tax withholding tax.
shall be required on all payments of wages and salaries made Employee D is absent from work in 1982 because of illness
iv.
to an employee by an employer. The withholding or the tax is and receives from the X Insurance Company the full amount of his
required even though such payments meet all the conditions for wages during the period of his absence from work. The payment
exclusion from taxable gross income as made through an accident was made from a health or accident insurance policy to which
or health insurance plan for personal injuries or sickness under only the employer has contributed. The amounts received by the
this section. The only exceptions for the withholding of tax shall be employee are excludable from taxable gross income as health or
for the following: accident insurance and are not subject to withholding tax.
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