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Taxation of Disability Benefits

Paula purchased an individual disability policy offered by her college alumni association to supplement the disability policy provided by her employer. Paula was out on disability for 6 months following a major heart attack. While on disability, Paula received $30,000 from her employer’s disability plan and $20,000 from her individual disability plan. How much of the disability payments does Paula have to include in her individual income tax return?

  1. $0
  2. $20,000
  3. $30,000
  4. $50,000