1.The benefits you receive are excludable from taxation to the extent that the premiums for the coverage were paid from your after-tax dollars (because the money you paid the premiums with was already taxed).
2.Conversely, if your benefit premium was paid under a Section 125 plan or other pre-tax method the premium dollars have not been taxed the IRS will tax the benefits that you currently receive.
3. Also, if the benefit premiums were paid solely by your employer the benefits are taxable to you as you receive them; because you have not paid your required share of the tax on the benefit premium.
Bottom line is that the benefit recipient will have to have paid tax on either the premium or the benefit.
Clearly the taxation is not dollar for dollar when comparing the premium to the benefit value.
