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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
A highly compensated employee for this purpose is any of the following
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
A spouse or dependent of a person described in (1), (2), or
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
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
Therefore it will require inclusion in the W-2 forms of those receiving the benefit.