Legal Services as an Employee Benefit

A legal services plan, sometimes called a prepaid legal services plan, is a plan in which your employer provides you with personal legal services in exchange for a contribution or premium. A legal services plan can provide you with adequate legal representation when you normally cannot afford a lawyer. Any contributions, payments, or services under a group legal services plan are included in your gross income. As a result, you are subject to taxation under a group legal services plan as follows:

• If your employer pre-funds the plan (pays a group legal insurance premium to an insurance company), you are taxed on your share of the premium at the time your employer pays it, as long as you are legally entitled to receive benefits under the plan. Thereafter, the benefits should be received tax free.
• If you employer pays for benefits out of current revenues as you receive the benefits, you are taxed on the value of the benefits as you receive them.

There are two types of group legal services plans. The first type is an access plan that provides basic legal advice over the phone and is for informative purposes only. The second type is comprehensive and includes legal advice over the phone along with additional legal services.

NOTE: While the exclusion for group legal services is currently not available, it is nevertheless possible for you to receive tax-free legal services. You can receive tax-free legal services if the service that you receive qualifies as either a deminimize fringe benefit (you receive a small amount of legal services from a member of an in-house legal staff) or a working condition fringe benefit (the legal services provided are job-related).