DIPP Discipline Inomce Protection Program

[JenMO]

Has anyone had one of these 1099 misc "other income"? Does the client get to deduct the cost of this insurance, and if so, where? New one to me.

[erchess]

I found this site

http://www.utu.org/worksite/DIPP.htm by Googling "Discipline Income Protection Program"

I would strongly suggest that you talk about everything with the plan sponsors perhaps after getting the relevant permission form signed by your client. Maybe this is the plan?

You seem to be assuming that the wage replacement received is taxable but if I understand your post you want to put it on line 21. I'm thinking more like line seven or find some other way to make sure it's subject to SE Tax since it's a wage replacement. I think my software has a way to put something on l 21 and subject it to SE but I'd have to call the company to find out how.

I'm thinking there should be no problem deducting the premium as an employee business expense as long as the taxpayer is filing SCH A and has enough misc itemized deductions subject to the 2% of agi limitation to get to make the deduction. Again I'd check with the plan sponsors to be sure unless you hear otherwise from someone who knows more than I do about these plans.

[JenMO]

FYI: Railroad employee; found some papers in their stuff, says the premiums paid over the years may be deductible, but they have been self preparing, and they have been taking those premiums off as an employee business expense. BRCF says theirs are dues, and again have been used as a emp bus exp. Rather right or wrong on deduction the premiums on 2106, I don't think they can use it as a deduction (again?)

[erchess]

yes

2011 premiums would be deducted on the 2011 return. It sounds like you're on the right track here.

[JenMO]

Are premiums paid for income replacement insurance an employee business expense? Clients have been able to use Sch A, so premiums have been deducted.

[Burke]

It appears as if this type of income replacement benefit is covered under ERISA, 29 USC, para 1001-1004. Wouldn't this make it a type of retirement benefit? Seems to me it should have been reported on 1099-R as such, not 1099MISC, but can't find any reference to its taxation or method of reporting as yet. And if this is the case, the prems would be deductible as employee contributions from the taxable part of the distributions as the distributions occur, not each year as a bus exp or dues when paid. I would not consider the benefit as wages. And the premiums are not what I would consider an ordinary and necessary expense of employment. It is neither ordinary nor necessary. It's a voluntary purchase of a type of insurance. And it definitely would not be dues, which are assessed as a requirement to be a member of a union or professional organization.

[JenMO]

Money rec'd is reported 1099-misc, and the payer has a ruling from IRS that this is the proper way to report and not liable for SE tax. Client has been paying income replacement insurance premiums for over 30 years, (I have not been doing tax return until this year). Client has been self preparing. Client has been taking premiums for this insurance off as an employee business expense. They have also been taking union dues, which I know is allowable. The insurance premiums probably were not supposed to be a deduction, but since the premium cost was used as an 2106 expense, wouldn't that disallow me to use the cost of the insurance as a basis in the income replacement money he received this year? Insurance paid off for him, but since he has taken the deduction for the premium already, (right or wrong), I think he has to pay on the full amount received.
Agreed?

[Burke]

I certainly agree with your reasoning. If he deducted the premiums for all prior years, then he certainly cannot now deduct them again from his benefit. BTW, was this a PLR? Can you give me a cite? Would like to have for my files. Tks.