Reportable Group Term Life Insurance

If the company pays all or a portion of the premium for a group life insurance plan, then coverage amounts in excess of the Internal Revenue Service (IRS)-determined limit results in taxable or imputed income to the employee. Using rates set by the IRS, the value of the excess coverage is added to an employee's taxable wages and is subject to payroll withholding taxes.

For example: The IRS has determined that the first $50,000 of group term life insurance coverage is exempt from this calculation. An employee is enrolled in a plan where the company pays half of the cost of the coverage. The employee's total coverage is $75,000, so the excess coverage is $25,000. (75,000 - 50,000).

This amount must be multiplied by the rate associated with the employee's age bracket to determine the value of this excess coverage, which then becomes reportable income for the employee. If the employee pays a portion of the premium with after-tax dollars, the premium paid can offset the calculated imputed income.