Imputed Income for Group Term Life Insurance
Many people may not realize that the Internal Revenue Service (IRS) considers the value of employer-paid group term life insurance a taxable benefit. Under federal guidelines, the value of group term life insurance in excess of $50,000, referred to as imputed income, is taxable. If an employee contributes to the cost of life insurance coverage, then the taxable income can be reduced by all of the employee’s contribution, provided the contribution is made with after-tax income.
The Internal Revenue Code requires employers to calculate the imputed taxable income for all employees who receive group life insurance coverage in excess of $50,000. Under this requirement, the amount of imputed taxable income must be reported on the employee's W-2 form as taxable earnings by January 31 of the following year.
Furthermore, if employees are allowed to purchase voluntary life insurance at a rate that is less than the cost of his or her insurance as determined by the IRS imputed tables, then this too should be reported as taxable income when in excess of $50,000. Employer-provided group term life insurance on the life of an employee’s spouse or dependent may also result in imputed income if the face amount of the coverage exceeds $2000.
Some payroll services will calculate the imputed taxable income for you. If this service is not available to you, Hill, Chesson & Woody can help. As one of the many services we offer, we will provide an Imputed Income Report for all your employees upon your request.
In order to compile the Imputed Income Report, however, we will need certain information about your employees. Please click here to download an Excel spreadsheet in which you can provide the employee's name, date of birth, date of hire, total life insurance coverage, and employee’s contribution towards the cost of coverage, if any. The spreadsheet also requests (in separate tabs) information relating to coverage on the life of the employee’s spouse and dependents (if applicable). If there has been a change in the total life insurance coverage during the year, please indicate the prior and current life insurance coverage along with the effective date of the change. For example, an employee may have had an increase from $85,000 to $100,000 in total life insurance coverage, effective 7/1/2009.
To receive your Imputed Income Report, please include the above information on the downloaded spreadsheet, save it under a new name (ex. “ABC Company imputed income data request”), and forward it to Hue Sheahan at hsheahan@hcwbenefits.com.
If you have any questions about imputed income, please contact our office at 919-403-1986.
Important Notice: Hill, Chesson & Woody does not engage in the practice of law, accounting, or medicine. Therefore, the contents of this communication should not be regarded as a substitute for legal, tax, or medical advice.
November 19, 2009
Hill, Chesson & Woody Employee Benefit Services
194 Finley Golf Course Rd, Suite 200,
Chapel Hill, NC 27517
Phone: 919.403.1986
Fax: 919.869.2063
www.hcwbenefits.com