It includes a plan resolution and a plan letter informing employees of the details of the plan. Most companies could not sustain the potential loss of revenue, profit and productivity if a key employee was disabled for a long period of time and unable to work. This means a company may cover only key employees or pay some employees a greater percentage of their salary while they are disabled. If the company elects to transfer the risk to an insurance company, it can do so through a group plan, with individual policies or a combination of both.
Premium payments are tax deductible.
By doing so, however, a company could fall into a tax trap with serious consequences. A Under IRC sections 105 and 162, a business cannot deduct wages paid to a disabled employee. The key word is wages. IRC section 106 requires that a company pay wages only to employees who render services. Businesses that have not yet adopted such a plan may wish to do so before disaster strikes and they must sacrifice valuable tax deductions to pay disabled employees.