According to Internal Revenue Service Section 79, if an employee receives more than $50,000 of group term life insurance under a policy carried by his employer, the imputed cost of coverage over $50,000 is considered taxable income and is subject to Social Security and Medicare taxes. An employee's imputed income for one month is figured by calculating his age on the last day of the calendar year and multiplying the coverage above $50,000 by the cost published in the IRS premium table for the employee's age group. The annual imputed income is calculated by multiplying the number of full months of coverage by the monthly amount and adding a prorated amount for a partial month.
Determine the employee's age on the last day of the calendar year. For example:
Employee birth date: June 1, 1970 Last day of calendar year: December 31, 2011 Employee age: 41
Subtract $50,000 from the total amount of group term life insurance provided to the employee through a policy carried by the employer. For example:
Total group term life insurance provided: $100,000 IRS permitted exclusion: $50,000 Excess subject to imputed income = $100,000 - $50,000 = $50,000
Determine the employee's age group from the IRS premium table. For example, age 45 is in age group "45 through 49."
Identify the monthly cost for the employee's age group from the IRS premium table. In our example, the monthly cost for 2011 is $0.15 per $1,000 of coverage.
Calculate the monthly imputed income by dividing the amount of excess coverage by $1,000 and multiplying that by the cost from the IRS premium table. For example:
$50,000 / $1,000 = 50 50 * $ 0.15 = $7.50 per month
Calculate the total imputed income for an employee by multiplying the monthly cost by the number of full months of coverage provided and adding a prorated value for a month where only partial coverage was provided. For example:
Coverage provided: September 16 through December 31 Full months: Three September proration: 15 days coverage / 30 days total = 0.5 Total imputed income: 3 $7.50 + 0.5 $7.50 = $26.25