Group Term Life Taxation — IRC Section 79 Requirements

Group Term Life Taxable Income: In general, Section 79 of the Internal Revenue Code (IRC) exempts from tax the first $50,000 of employer-provided group term life benefit for active and retired employees in nondiscriminatory plans. IRS Table I values (see below) are used to calculate the cost of the group term life amounts in excess of $50,000. The cost of these excess life amounts is then offset by any after-tax employee contributions. The amount remaining is included in taxable income. As a practical manner, few employers have taxable income to report, since many plans require employee contributions which more than offset the cost determined in Table I.

Group Term Life Table I

Age:	Under 25	25-29	30-34	35-39	40-44	45-49	50-54	55-59	60-64	65-69	70 & Above
Monthly Rate:	$0.05	.06	.08	.09	.10	.15	.23	.43	.66	1.27	2.06

Calculating Taxable Income

The cost of taxable life insurance amounts is calculated on a
month-by-month basis. Here is an example:

Step 1: Enter Table I rate at the persons attained age on the last day of the taxable year.
Step 2: Multiply the per thousand Table I rate by the number of thousands in taxable life benefit.
Step 3: Subtract any monthly employee contributions.
Step 4: Add together each month’s calculation to determine the total reportable amount for the tax year.

For example, an employee age 42 has $75,000 in group life benefit during the tax year. The employee contributes $2.00 per month. The Table I cost of $25,000 ($75,000 less $50,000 exemption) less any employee contributions must be included in taxable income.

Calculate each month as follows:

Step 1: Table I rate at age 42 is .10
Step 2: 25 x .10 = $2.50
Step 3: $2.50 – $2.00 = $.50
Step 4: $.50 totaled for the year is $6.00
($.50 × 12 months = $6.00)

The same method for determining taxable income generally applies to dependent life benefits. There is no $50,000 exclusion. Instead, IRS Announcement 89-110 exempts dependent life benefits of $2,000 or less for most plans. Again, as a practical matter, very few employers have taxable income to report, since many plans require employee contributions which more than offset any Table I costs. In those few plans that don’t require contributions for dependents, reporting may still not be required if the taxable income amounts are considered minimal under IRC fringe benefit rules. Questions regarding specific reporting requirements for employee and dependent life benefits should be referred to your tax advisor.

Extra Support: As a service to Benefit Planning Group clients, you may elect to have the Table I calculation computed by Benefit Planning Group. There is no charge for this service for Benefit Planning Group customers. To accomplish this, please provide the following prior to December 10th: 1. employee name, 2. date of birth, 3. the life insurance benefit amount over $50,000 for the employee and any dependent life benefit amounts above $2,000 and 4. the total number of months in the taxable year the employee and/or dependents were covered under the life insurance policy.

This information is not intended as legal or tax advice. Employers should consult their attorneys and tax advisors for specific compliance information and assistance regarding their plans.