Overview

Main Menu Name: Group Trm

Calculates the amount an employee must include in his reportable income to reflect certain life insurance coverage provided by an employer.

In this article:

• Background
• Getting Started
• Entering Data
• Results

Background

This calculation determines the amount an employee must include in reportable income to reflect certain life insurance coverage provided by an employer.

Group term life insurance is a taxable economic benefit that must be included in an employee's reportable gross income. Generally, the first $50,000 of coverage is income tax free. Any coverage in excess of $50,000 is taxable. If the employee contributes to the coverage, the amount contributed is deducted from the taxable portion of the coverage.

The taxable portion is calculated using the following steps:

• The total amount of group term coverage on a monthly basis over a tax year is calculated.
• $50,000 is deducted from each month's coverage.
• The appropriate rate from Table I of the government regulations is applied to the coverage.
• Employee contributions, if any, are subtracted from the total.

Regardless of the amount, the cost of group term life insurance is tax exempt if any one of the following conditions exists:

• The employee has retired on disability.
• A charity is the beneficiary of all or part of the proceeds during the tax year.
• The employer is the beneficiary.

Retired employees in nondiscriminatory plans also are subject to tax on the cost of insurance in excess of $50,000.

Getting Started

Group term life insurance is a taxable economic benefit that must be included in an employee's reportable gross income. Generally, the first $50,000 of coverage is income tax free, and any coverage in excess of $50,000 is taxable. If the employee contributes to the coverage, the amount contributed is deducted from the taxable portion of the coverage.

The taxable portion is calculated using the following steps:

• The total amount of group term coverage on a monthly basis over a tax year is calculated.
• $50,000 is deducted from each month's coverage.
• The appropriate rate from Table I of the government regulations is applied to the coverage.
• Employee contributions, if any, are subtracted from the total.

Regardless of the amount, the cost of group term life insurance is tax exempt if any one of the following conditions is true:

• The employee has retired on disability.
• A charity is the beneficiary of all or part of the proceeds during the tax year.
• The employer is the beneficiary.

Retired employees in nondiscriminatory plans also are subject to tax on the cost of insurance in excess of $50,000.

Entering Data

1. Use Table I Rates Effective Starting 7/1/1999:  Select the check box to use the new term rates. It is not necessary to use this checkbox until July 1, 1999.
2. Age of Employee:  Enter the attained age of the employee on the last day of his tax year. Valid age inputs are 1 to 100.
3. Amount of Group Term Coverage:  Enter the total amount of group term coverage on a monthly basis over the employee's tax year.
4. Employee's Contribution:  Enter the amount contributed by the employee to the group term coverage. If no contribution was made, enter 0.

Results

The program calculates the amount an employee must include in his reportable gross income to reflect certain life insurance coverage provided by an employer.

To calculate this value, the calculation first subtracts the excludable amount ($50,000) from the amount of group term coverage specified at the Amount of Group Term Coverage entry field. The result is the taxable portion of the death benefit. The calculation then multiplies the taxable death benefit by the annual Table I (of the government regulations) rate for the age specified in the Age of Employee entry field. From this amount, the calculation subtracts any contributions made by the employee to the group term coverage to arrive at the taxable income.