Is group term life insurance treated as a normal benefit deduction until it reaches $50,000?
by admin ~ June 9th, 2006 . Filed under: United States .
Veronica K asked:
I know that the excess amount(anything over $50,000) is added to an employee pay either every pay or at the very latest, once per year. But is the actual coverage amount deducted from the employee’s pay if the employee is contributing
Stephen Granillo
I know that the excess amount(anything over $50,000) is added to an employee pay either every pay or at the very latest, once per year. But is the actual coverage amount deducted from the employee’s pay if the employee is contributing
Stephen Granillo
June 11th, 2006 at 3:45 am
it’s not the excess amount, it’s a formula for valuing the insurance expense. My boss has life insurance for me at 3 times my salary, and if the excess amount over $50,000 was added to my salary, I’d have to die and collect the insurance to pay the tax.
Rates are used in calculating the cost of group term life insurance coverage in excess of $50,000, a cost which is taxable to the employee. The cost of up to $50,000 of coverage is tax exempt. If the employee contributes toward the cost of the insurance, all of his contribution may be subtracted from the amount which would otherwise be taxable to him.
The Internal Revenue Service classifies the cost of all employer-paid group life insurance coverage over $50,000 as a fringe benefit subject to federal income, Social Security, and Medicare taxes. The amount of life insurance coverage is not taxable, but the premium required to pay for the life insurance coverage is taxable. The calculations are different depending on whether the member has both Contributory and Noncontributory Group Life Insurance, or Noncontributory Group Life Insurance only.