If you make a top-up disability payment to one of your employees, the following rules apply:

• The payment is not considered a contribution made by you to or under the insurance plan of which the disability policy, for which the payment is made, is a part.
• If the payment is made to the employee, it is considered an amount received by the employee pursuant to the insurance plan of which the disability policy is a part.

A top-up disability payment received by an employee (or former employee) under a group disability insurance plan funded solely by employee contributions is not a taxable benefit.