An employer pays the entire premium for a group disability insurance plan covering its employees. Which statement about the employer's federal income tax treatment is correct?

Why A is correct

Employers generally may deduct premiums paid for group disability coverage as ordinary and necessary business expenses under the same principles that apply to group health and group term life coverage. The deduction is available because the coverage is compensation-related and provides an employee benefit. The distinction this question tests is the employer's own deduction, which is a straightforward business expense, as opposed to the treatment of benefits in the employee's hands, which is governed by separate rules depending on who paid the premiums.

Why the other options are wrong

• B) Employer-paid group disability premiums are generally not currently taxable to employees; benefit taxation is a separate later question.
• C) The premiums are a deductible business expense; there is no rule barring deduction because the coverage is disability-related.
• D) Premiums are operating expenses deducted currently, not capital expenditures to be amortized.

Memory hook

Group DI premiums are a business expense for the employer. Payroll-cost deduction, plain and simple.