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 The
cost of group term life insurance may be taxable income to an employee
Andrew J. Mann
Treasurer
Here is how to determine whether or not the cost
of group term life insurance is taxable to an employee:
• Generally the cost of up to $50,000 of group term life insurance
coverage is tax exempt.
• The cost of coverage in excess of $50,000 is taxable to the
employee.
• The excess cost is calculated on a monthly basis.
• First determine the amount of group term coverage for the
employee each month.
• Then subtract $50,000 from each month’s coverage.
• Apply the appropriate rate from the “Table I”
to the
balance.
• The result is a taxable fringe benefit that must be included
in gross income on the employee’s W-2 at year-end.
• For example: an employee aged 33 had $80,000 of group term
coverage in place for the entire year. For the taxable amount multiply
.08 (cost per $1,000 for one month) times 30 ($80,000-$50,000) times
12 (number of months in place), or $28.80.
Complete instructions and an Excel template for computing these costs
are available by contacting: Andrew Mann, amann@proctorandcompany.com
or 508-370-7777.
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