Imputed Life Insurance Policies
When an employer provides group term life insurance policies to employees, the worker receives a benefit in lieu of receiving cash. However, the Internal Revenue Service only allows the taxpayer to receive a portion of this benefit without having to pay taxes. The remaining amount of coverage in excess of this limit results in an imputed cost to the employee, which is taxable by the IRS. This is what is meant by an imputed life insurance policy.
Other People Are Reading
-
Definition Imputed Income
-
Imputed income is a benefit or cash value received in return for rendering a service. Interest income is imputable if a person or business makes a loan to another and does not charge any interest over the repayment period. When an employer provides group term life insurance to its employees, some of the "phantom" income that the employee receives is taxable for purposes of Social Security and Medicare taxes.
Group Term Life Insurance Policies
-
Group term life insurance policies are offered by many employers as a fringe benefit to the employees. The coverage applies to a large group of people, thereby significantly reducing the cost of the premiums that may be payable by either the employee or the employer. If the employee dies during the coverage term, the beneficiaries he declares are paid a death benefit as outlined by the contract.
-
Internal Revenue Code Section 79
-
Internal Revenue Code (IRC) Section 79 states that any employee receiving greater than $50,000 in group term life insurance must report the imputed income to the IRS on Form W-2. The employer is responsible for calculating the amount of applicable imputed taxable income. So, if the employer grants coverage to an employee in the amount of $75,000, the $25,000 of excess coverage denotes the value on which the employee will pay taxes. However, this is not the amount of phantom income he is receiving each year.
Determining the Amount of Imputed Income
-
Calculating the imputed income the employee must report is a component of the worker's age and the amount of extra coverage. First divide the excess amount by $1,000. Using the above example, this gives a value of $35. Multiply that amount by the cost associated with the age of the employee: under age 25 is 5 cents; 25 to 29 is 6 cents; 30 to 34 is 8 cents; 35 to 39 is 9 cents 40 to 44 is 10 cents; 45 to 49 is 15 cents; 50 to 54 is 23 cents; 55 to 59 is 43 cents; 60 to 64 is 66 cents; 65 to 69 is $1.27; 70 and over is $2.06. If the employee from the previous example is 37 years old, he multiplies $35 by .09 to get a value of $3.15 of imputed income. This is the amount the employer includes in the employee's wages for the year.
-
