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| Posted on: Monday, May 24, 2004 |
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The Internal Revenue Service (IRS) agreed to reduce rates in Table I, the schedule that determines the cost of employer-provided group term life insurance under IRS Code Section 79. The result is that the tax cost of coverage provided under Section 79 plans will drop an average of more than 35 percent. Employees can still have up to $50,000 in employer-provided group life coverage without any tax consequences.
Table I has not been changed since 1983, and is being updated to reflect the fact that people are now living longer and to recognize the greater participation of women in the workplace. When the new table becomes effective July 1, 1999, it will enhance the attractiveness of receiving life coverage at the workplace.
What is IRC Sec 79?
Section 79 of the Internal Revenue Code (IRC) requires that employers calculate imputed taxable income for employees that receive group life insurance coverage in excess of $50,000. The amount of imputed taxable income must be reported on the employee’s Form W-2. The IRC Section 79 allows employees to exclude up to $50,000 from taxable income.
Impact of the Proposed Changes
• Employees who have more than $50,000 of coverage through employer-
paid plans will have significantly lower amounts of imputed income.
(Imputed income is not part of an employee’s cash earnings but is treated
as wages for tax purposes and reported on the employee’s W-2 form.)
• Employers who sponsor these plans will pay less in Social Security taxes
because their employees’ imputed income is reduced.
• After-tax plans, such as employee-paid group term life plans, are not
affected because they are paid with employee money.
To compute taxable income, subtract the first $50,000 of otherwise taxable group insurance and then multiply the appropriate monthly rate by 12 to get the annual reportable rate. Then multiply that by the group insurance you are receiving in excess of $50,000.
For instance, under the current Table I rates, at age 40, if your employer provided you with $1,050,000 of group -term coverage, your reportable income would be $2,040 ($2.04 x 1,000). Under the proposed Table I, your reportable income would be only $1,200 ($1.20 x 1,000). That is a significant saving! It’s even greater if you are in your 50’s or 60’s.
To view table, please click here
Should you have any additional employee benefit questions or would like to discuss this material in detail, please don’t hesitate to call the Denman Team.
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