Melissa, aged 35, receives a $3,000 long-term disability payment from her employer's insurance plan. What amount should she report as income?

When considering the taxation of long-term disability payments, the key factor is how the premiums for the disability insurance were paid. If the employer provides and pays for the insurance premiums, the benefits received by the employee as a long-term disability payment are generally considered taxable income.

In this scenario, since Melissa received a $3,000 long-term disability payment from her employer’s insurance plan, she should report the full amount of $3,000 as income. The reasoning is that if the employer is responsible for the premium, then the employee will need to treat the benefits received as taxable.

If Melissa had paid for the disability insurance out of her after-tax income, the benefits would typically be non-taxable, but without information suggesting this was the case, the standard practice is to report the entire payment as income.

This understanding helps clarify the tax implications associated with employee benefits, especially in distinguishing between employer-paid and employee-paid insurance plans.