IRC Section 79 allows employers to deduct the premium cost of group term life insurance provided to employees. As a general rule, the cost of the first $50,000 of group term life insurance provided to employees is tax exempt. To qualify for favorable treatment, the plan must not discriminate in favor of “key employees’ in terms of benefits or eligibility. The cost of coverage in excess of $50,000 and paid for by the employer must be included in the employee’s income and must be reported on the employee’s Form W-2. Additional information on the inclusion of the cost on the employee’s W-2 can be found in IRS Publication 15-b, available on the link below:
http://www.irs.gov/pub/irs-pdf/p15b.pdf
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Group Term Life Insurance – Table I Rates |
From the IRS Website: http://www.irs.gov/publications/ Publication 15-b, Section 2, Fringe Benefit Exclusion Rules, Group Term Life Insurance coverage |
| Exclusion from wages. You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. |
| Coverage over the limit. You must include in your employee's wages subject to social security and Medicare taxes the cost of group-term life insurance that is more than the cost of $50,000 of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code C. |
| Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in the following table. Use the employee's age on the last day of the tax year. You must prorate the cost from the table if less than a full month of coverage is involved |
Cost Per $1,000 of Protection For 1 Month |
| Age | Cost |
|---|
| Under 25 | $ .05 |
| 25 through 29 | .06 |
| 30 through 34 | .08 |
| 35 through 39 | .09 |
| 40 through 44 | .10 |
| 45 through 49 | .15 |
| 50 through 54 | .23 |
| 55 through 59 | .43 |
| 60 through 64 | .66 |
| 65 through 69 | 1.27 |
| 70 and older | 2.06 |
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| You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost | |
Example. | |
| Tom's employer provides him with group-term life insurance coverage of $200,000. Tom is 45 years old, is not a key employee, and pays $100 per year toward the cost of the insurance. Tom's employer must include $170 in his wages. The $200,000 of insurance coverage is reduced by $50,000. The total cost of $150,000 of coverage is $270 ($.15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. The employer includes $170 in boxes 1, 3, and 5 of Tom's Form W-2. The employer also enters $170 in box 12 with code C. | |
Important Note: If you provide life insurance on an employee-pay-all basis as part of part of an IRC Section 125 plan, please click on the Frequently Asked Questions document below for additional information. | |
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FAQ Voluntary life and pretax dollars ed 10 02 06.doc
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