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Taxation of Disability Insurance Benefits and Premiums for Texas Instruments Employees

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Healthcare Provider Update: Healthcare Provider for Texas Instruments Texas Instruments primarily provides health benefits to its employees through Aetna. Aetna offers a variety of health plans, including medical, dental, and vision insurance options, ensuring comprehensive coverage for employees and their families. Potential Healthcare Cost Increases in 2026 As Texas Instruments navigates the healthcare landscape, employees may face significant challenges due to anticipated healthcare cost increases in 2026. Industry reports project that health insurance premiums for Affordable Care Act (ACA) plans could rise substantially, with some states seeing increases exceeding 60%. Factors contributing to this surge include the potential expiration of enhanced federal subsidies and ongoing medical cost inflation, which is expected to continue impacting healthcare affordability. With more than 92% of marketplace enrollees potentially facing over a 75% increase in out-of-pocket premiums, proactive financial planning becomes crucial for both the company and its workforce. Click here to learn more

Research suggests that individuals approaching retirement age should be aware of the potential tax implications of disability insurance benefits. While individual disability income insurance benefits are typically tax-free because the premiums are paid with after-tax dollars, it's important to note that group disability insurance benefits may be taxable if the employer pays the entire premium and excludes it from the employee's basic income. Additionally, disability benefits received through government disability insurance programs, such as Social Security, may be subject to taxation if the recipient's total income exceeds a certain threshold. Understanding the taxation rules can help you plan your finances effectively.

What Is It?

As with all income, the disability insurance income you receive may or may not be taxable. Whether disability insurance benefits are taxable depends on the type of benefits you receive, whether the premiums were paid with pretax or after-tax dollars, and whether you or Texas Instruments paid the premiums.

Individual Disability Income Insurance

In general, the rules governing the taxation of individual disability income insurance benefits are straightforward. Because the premiums are paid with after-tax dollars, the benefits are tax-free. However, these Texas Instruments employees must remember that, unlike health insurance premiums, individual disability income insurance premiums cannot be deducted as medical expenses.

Example(s): Individual disability income insurance cost Jessie $175 per month. She began receiving disability benefits when she became incapacitated and had $15,000 in annual disability income. When filing her tax return, she was not required to include this amount as income. Neither could she deduct the $2,100 disability insurance premium she paid as a medical expense.

Caution: your employer may occasionally pay your individual insurance premium. If you are designated a key employee by the company, this may be the case. Consequently, various rules apply. Refer to the section below for details on group disability insurance.

Group Employer-Sponsored Disability Insurance

Who Pays The Premium?

If you are enlisted in an Texas Instruments-sponsored group disability insurance plan, the taxability of your benefits depends on who pays the premium. If you pay the entire premium with post-tax income, your benefits will be exempt from taxation. In contrast, if Texas Instruments pays the entire premium and does not include the cost of coverage in your basic income, then your benefits are taxable. If Texas Instruments pays a portion of your insurance premium and you pay the remainder, your tax liability will also be divided. Any portion of the benefit attributable to the portion of the premium paid by Texas Instruments is taxable. Any portion of the benefit attributable to your premium contribution is exempt from taxation.

Example(s): Phyllis was covered by her employer's group disability insurance plan. Her employer paid half the monthly premium, while Phyllis paid the other half with after-tax dollars. When Phyllis became disabled, she received a monthly benefit of $1,000 for six months. When she submitted her taxes, she was only required to pay tax on $3,000 (half of the benefit she had received), the portion attributable to her employer's contribution.

Is Your Share of The Premium Paid  with  Pretax or After-Tax Dollars?

The type of dollars you use to pay any portion of the premium for prospective Texas Instruments-sponsored disability coverage will determine whether your benefit is taxable. If you pay your portion of the premium with pretax dollars, any disability benefits you receive that are attributable to that portion of the premium will be subject to income tax. If you pay your portion of the premium with after-tax dollars, however, you will not owe income tax on any disability benefits you receive that are attributable to that portion of the premium.

How Are Benefits Paid Under Cafeteria Plans?

If Texas Instruments offers cafeteria plan benefits, you will be able to choose from a variety of employee benefits, including health, life, and disability insurance. Texas Instruments could offer an option in which they pay the premium for the benefits you select up to a certain amount, and you pay (via payroll deduction) for any additional coverage you select using either pretax or after-tax dollars. If you pay your portion of the premium with post-tax dollars, the corresponding portion of your disability benefits will be tax-free.

However, if you pay your share with pretax dollars, that portion of your disability benefits will be taxable. Therefore, if you pay a portion of your disability premium with pretax dollars, you will be required to pay income tax on all of your benefits. In contrast, if you pay your portion of the premium with after-tax dollars, you will only be taxed on the portion of the benefit that Texas Instruments is responsible for. Refer to Questions and Answers.

Example(s): Through her employer's cafeteria plan, Brenda purchased health insurance, accidental death and dismemberment insurance, and long-term disability insurance. The total monthly premium for all three benefits was $200. Brenda's monthly contribution under her employer's plan was $100 (paid in after-tax dollars) because her employer provided $100 in monthly benefits to each employee. Brenda paid tax on only 50 percent of her benefit (the portion of her benefit attributable to her employer's contribution) when she became disabled and began receiving benefits, because she had used after-tax dollars to pay her portion of the premium.

Technical Note: The number of benefits attributable to Texas Instruments's prospective contribution is determined in accordance with Section 105 of the Internal Revenue Code. If you have queries regarding the calculation of Texas Instruments's contribution, consult your tax advisor or another qualified professional.

Caution: If you are totally and permanently disabled and receive wholly or partially taxable disability benefits from Texas Instruments's-sponsored disability insurance plan, you may be able to claim a tax credit on your annual income tax return.

Group Association Disability Insurance

Association-purchased disability policies are referred to as group policies because members are offered special terms, conditions, and premiums based on the characteristics of their group. However, association policies function similarly to individual policies and have comparable tax consequences: The benefits you receive from an association policy are tax-free, and the premiums you pay are not deductible.

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Government Disability Insurance

Sometimes, Benefits Are Taxable

In general, a portion or all of the disability benefits you receive through government disability insurance programs may be taxable. The amount of the benefit that is taxable and the circumstances under which it is taxable depend on the form of government disability benefit you are receiving.

Social Security Benefits

If your only income during the year was disability income from Social Security, your benefit is typically not taxable. However, if you earned other income or had substantial investment income during the year, you may be required to pay tax on a portion of your benefit if your total income exceeds a certain threshold. The rule states that your Social Security benefit is taxable if your modified adjusted gross income plus fifty percent of your benefit exceeds the filing status's base amount.

Cole becomes disabled and begins receiving disability benefits from Social Security. Since he submits taxes as a single individual, he has a $25,000 base amount. His modified adjusted gross income (taxable income minus Social Security benefits) amounts to $20,000. He receives additional Social Security benefits of $7,000. Cole's Social Security disability benefits are exempt from taxation because his modified adjusted gross income plus half of his Social Security benefit ($20,000 plus $3,500) does not exceed his base amount.

Medicare Benefits

Medicare eligibility may be possible for disabled individuals. If you pay premiums for the Medicare medical insurance portion, you may deduct these premiums as a medical expense (as long as your total medical expenses exceed 10% of your adjusted taxable income). In addition, Medicare benefits are not subject to taxation.

Caution: 65 and older taxpayers can use the 7.5% income threshold until 2017.

Workers' Compensation

In most instances, workers' compensation disability benefits are not taxable. All benefits paid to your survivors are also exempt from taxation. In some instances, you may be able to return to work and continue receiving payments. In this scenario, your workers' compensation benefits will be taxable.

Caution: If a portion of your workers' compensation benefit reduces your Social Security benefit, that portion is regarded as a Social Security benefit. It may then be subject to Social Security taxation regulations.

Department of Veterans Affairs (VA) Benefits

The Department of Veterans Affairs (VA) disability benefits are not taxable, with the exception of certain disbursements for rehabilitative services.

Military Benefits

Most disability pensions from the military are taxable. Nevertheless, if you became disabled as a result of an injury or illness sustained during active service in any country's armed forces, your disability benefits may be exempt from taxation if any of the following conditions are met:

  • On September 24, 1975, you were a member of a government service or its reserve component, or you had a binding written commitment to become a member.
  • A 'combat-related injury' qualifies you for disability payments.
  • You would be eligible for Department of Veterans Affairs (VA) disability compensation if you submitted an application for it.

In the absence of any of the aforementioned conditions, your disability benefit will be taxable. If only a portion of your benefit is based on a combat-related injury, only that portion will be exempt from taxation.

Federal Employees Retirement System (FERS) Benefits

If you retire on disability under FERS, your pension or annuity payments are taxable as compensation until you reach the minimum retirement age (the age at which you can begin receiving a pension or annuity if you are not disabled). Beginning the day after you attain the minimum retirement age, pension payments are taxable.

Questions & Answers

If You Have the Option of Paying for Disability Coverage With Pretax Dollars or After-Tax Dollars, Which Is Better?

When you purchase disability insurance with pretax dollars, you reduce your taxable income. This means that no taxes will be withheld from the portion of your income used to pay your disability insurance premium, as this money is not taxable. However, our Texas Instruments clients must also consider how their benefits will be taxed if they begin receiving disability benefits in the future. If you pay your insurance premium with pretax dollars, your benefit will be fully taxable because it is deemed an employer contribution. If you use after-tax dollars, however, your benefit will not be taxable. In the end, it comes down to this: If you pay your premium with pretax dollars, you will save money if you never use your disability benefits. But if you use your disability benefits, you will wind up with a lot more money if you paid your premium with after-tax dollars. Consult a tax professional for guidance.

Conclusion

Understanding the taxation of disability insurance benefits and premiums in retirement is akin to unraveling a complex puzzle in the financial realm. Imagine you are a diligent researcher analyzing different financial instruments. Each type of disability insurance represents a distinct avenue to explore, with its own tax implications. Individual disability income insurance can be likened to a meticulously planned investment strategy, offering tax-free benefits as the premiums have already been paid with after-tax funds. Group disability insurance resembles a carefully negotiated partnership, where the taxability of benefits depends on the party responsible for premium payments. Government disability insurance resembles a structured program, with certain benefits being subject to taxation based on specific circumstances. By thoroughly examining the intricacies of taxation rules, individuals can make informed decisions to optimize their retirement financial planning.

What type of retirement savings plan does Texas Instruments offer to its employees?

Texas Instruments offers a 401(k) retirement savings plan to its employees.

Is there a company match for contributions to the Texas Instruments 401(k) plan?

Yes, Texas Instruments provides a company match for employee contributions to the 401(k) plan, subject to certain limits.

At what age can employees of Texas Instruments start contributing to the 401(k) plan?

Employees of Texas Instruments can start contributing to the 401(k) plan as soon as they are eligible, typically upon hire or after a short waiting period.

How can Texas Instruments employees enroll in the 401(k) plan?

Texas Instruments employees can enroll in the 401(k) plan through the company's online benefits portal or by contacting the HR department for assistance.

What investment options are available in the Texas Instruments 401(k) plan?

The Texas Instruments 401(k) plan offers a variety of investment options, including mutual funds, target-date funds, and other investment vehicles.

Does Texas Instruments allow employees to take loans from their 401(k) accounts?

Yes, Texas Instruments allows employees to take loans from their 401(k) accounts, subject to specific terms and conditions.

What is the vesting schedule for the company match in the Texas Instruments 401(k) plan?

The vesting schedule for the company match in the Texas Instruments 401(k) plan typically follows a graded vesting schedule, which means employees earn ownership of the match over a period of time.

Can Texas Instruments employees change their contribution percentage at any time?

Yes, Texas Instruments employees can change their contribution percentage at any time, usually through the online benefits portal.

What happens to the 401(k) plan if an employee leaves Texas Instruments?

If an employee leaves Texas Instruments, they can choose to roll over their 401(k) balance to another retirement account, leave it in the Texas Instruments plan (if eligible), or withdraw the funds, subject to taxes and penalties.

Are there any fees associated with the Texas Instruments 401(k) plan?

Yes, there may be fees associated with the Texas Instruments 401(k) plan, which can include administrative fees and investment-related fees. Employees are encouraged to review the plan documents for details.

With the current political climate we are in it is important to keep up with current news and remain knowledgeable about your benefits.
Texas Instruments offers both a traditional defined benefit pension plan and a defined contribution 401(k) plan. The defined benefit plan includes a cash balance component, where benefits grow based on years of service and compensation, with interest credits added annually. The 401(k) plan features company matching contributions and various investment options, including target-date funds and mutual funds. Texas Instruments provides financial planning resources and tools to help employees manage their retirement savings.
Layoffs and Restructuring: Texas Instruments announced it will lay off 1,700 employees as part of a broader effort to shift focus from its mobile business to embedded markets. The job cuts represent about 5% of TI's staff and are aimed at cutting costs and increasing presence in the burgeoning embedded device market (Sources: Manufacturing.net, Hartford Business Journal). Operational Changes: The layoffs will begin in early November 2024 and be spaced out until the end of January 2025. Employees affected by these layoffs include technicians and engineers who couldn't find other positions within the company (Source: Manufacturing.net). Strategic Focus: TI's strategic shift involves concentrating on embedded connectivity in everyday items, including appliances, cars, and clothing, to align with industry trends and future growth opportunities (Source: Hartford Business Journal).
Texas Instruments provides both RSUs and stock options as part of its employee compensation. RSUs vest over time, converting into shares, while stock options allow employees to buy shares at a set price.
Texas Instruments (TI) offers a comprehensive healthcare benefits package aimed at supporting the diverse needs of its employees. For 2023, TI continued to provide 100% coverage for periodic preventive health office visits and screening tests, without any copay or deductibles. Additionally, the company offers a range of options including health savings accounts (HSAs), flexible spending accounts (FSAs), and various insurance plans like dental, vision, and life insurance. Mental health benefits and wellness programs are also integral parts of the healthcare offerings at TI. In 2024, Texas Instruments has further refined its benefits to include enhanced mental health resources and flexible work schedules. Employees can access job training, tuition reimbursement, and paid volunteer time, reflecting TI's commitment to overall well-being and professional growth. These benefits are particularly important in today's economic and political environment, where maintaining a healthy work-life balance and financial security is crucial. By continuously updating its healthcare benefits, Texas Instruments ensures that employees are well-supported in managing their health and career development.
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For more information you can reach the plan administrator for Texas Instruments at 12500 ti blvd Dallas, TX 75243; or by calling them at 855-226-3113.

https://www.ti.com/documents/pension-plan-2022.pdf - Page 5, https://www.ti.com/documents/pension-plan-2023.pdf - Page 12, https://www.ti.com/documents/pension-plan-2024.pdf - Page 15, https://www.ti.com/documents/401k-plan-2022.pdf - Page 8, https://www.ti.com/documents/401k-plan-2023.pdf - Page 22, https://www.ti.com/documents/401k-plan-2024.pdf - Page 28, https://www.ti.com/documents/rsu-plan-2022.pdf - Page 20, https://www.ti.com/documents/rsu-plan-2023.pdf - Page 14, https://www.ti.com/documents/rsu-plan-2024.pdf - Page 17, https://www.ti.com/documents/healthcare-plan-2022.pdf - Page 23

*Please see disclaimer for more information

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