It violates principles, i.e. Statutes which are rules of Income taxation. It violates principle of democracy in taxing governed, but not governing for similar amount. It violates principles of contract law. And it violates common sense logic. It is a non-legislated tax on disabled that is not imposed upon others.
Covered costs are costs incurred to produce the insurance benefit.
They must be reduced from benefit amount to determine income. This principle is evidenced by taxation of all other insurance. Taxing that amount is both violating income principle, reimbursement is not income, and discriminating against disabled, who receive insurance benefits from disability plan. It is, also, discrimination against disabled to tax employee benefits payable because of forced retirement, due to disability, when retirement benefits are not taxed in Illinois. It is contrary to principle of not taxing retirement benefits in Illinois.