While premium payments must be made by a church as the employer, each church has the option to provide the LTD coverage, by classification, as an employer benefit or by means of voluntary payroll deduction.
What’s the difference? Should a disability occur that is covered, the benefit will be taxable if the church has provided the benefit. If the staff member has paid for coverage through after-tax payroll deduction, any benefit payments would not be taxable.
Increasingly, the “Tax Choice” method of administering payroll deduction is being used by employers. The employer may add the amount of premiums to the employee’s gross income and then payroll-deduct the same amount as an after-tax benefit. The employee’s net expense for coverage, then, is the tax on the premium.