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Group Term Life Insurance and Imputed Income

Is It Computing?

Company paid Group Term Life (GTL) insurance is a common benefit offered to employees as part of a Total Rewards package. As with most group insurance plans, there are nuances and tax rules that employers need to understand when deciding what level of coverage, and whom to offer GTL benefits.

When offering employer-paid GTL, up to $50,000 of coverage is tax exempt according to IRS code section 79. Benefit amounts over $50,000 are subject to imputed income* tax and calculated based on an IRS established rate table.  

For example (based on the IRS rate table), if a 32-year-old employee receives a company paid GTL benefit of $150,000, the amount of imputed income that must be reported for that employee is $8.00 per month ($100,000 divided by 1000, multiplied by $.08).                                    

Under Section 79, in order for a plan to retain the tax advantages for amounts up to $50,000, a GTL plan must not discriminate in favor of key employees, based on benefits offered and eligibility to participate. If your plan offers the same level of  GTL coverage to all full time employees, your plan is likely not discriminatory.

* The value of a benefit or service that the IRS considers income for the purposes of calculating taxes.

HR Works is not engaged in rendering legal services. If legal advice is required, the services of a competent labor attorney should be sought.

HR Works, headquartered in Upstate New York, is a human resource management outsourcing and consulting firm serving clients throughout the United States for over thirty years. HR Works provides scalable strategic human resource management and consulting services, including: affirmative action programs; benefits administration outsourcing; HRIS self-service technology; full-time, part-time and interim on-site HR managers; HR audits; legally reviewed employee handbooks and supervisor manuals; talent management and recruiting services; and training of managers and HR professionals.