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If the company provides long term disability only to key employees (employer paid) the benefits will be subject to income, Social Security and Medicare taxes as a taxable fringe benefit but the employer will be able to claim a tax deduction for the cost.
Here is a short piece from the IRS concerning key personnel:
Plans that favor highly compensated employees. If your plan favors highly compensated employees as to eligibility to participate, contributions, or benefits, you must include in their wages the value of taxable benefits they could have selected. A plan you maintain under a collective bargaining agreement does not favor highly compensated employees.
A highly compensated employee for this purpose is any of the following employees.
A shareholder who owns more than 5% of the voting power or value of all classes of the employer's stock.
An employee who is highly compensated based on the facts and circumstances.
A spouse or dependent of a person described in (1), (2), or (3).
Plans that favor key employees. If your plan favors key employees, you must include in their wages the value of taxable benefits they could have selected. A plan favors key employees if more than 25% of the total of the nontaxable benefits you provide for all employees under the plan go to key employees. However, a plan you maintain under a collective bargaining agreement does not favor key employees.
A key employee during 2011 is generally an employee who is either of the following.
An officer having annual pay of more than $160,000.
An employee who for 2011 is either of the following.
A 5% owner of your business.
A 1% owner of your business whose annual pay was more than $150,000.
Therefore it will require inclusion in the W-2 forms of those receiving the benefit.