| |||||||||||
| |||||||||||
Page 1 * 2 * 3 * 4 * 5
Group-Term Life Insurance CoverageGroup-term life insurance coverage is generally exempt from taxation for an employee's insurance coverage up to $50,000. (Special rules apply to former employees.).
There are two exclusions:
· Exemption does not apply to S corporation employees who are 2% shareholders.
· Exemption does not apply to certain key employees under a plan that favors those employees.
This exclusion applies to life insurance coverage that meets all the following conditions.
· It provides a general death benefit that is not included in income.
· You provide it to a group of employees. See the 10-employee rule below.
· It provides an amount of insurance to each employee based on a formula that prevents individual selection. This formula must use factors such as the employee's age, years of service, pay, or position.
You provide it under a policy you directly or indirectly carry. Even if you do not pay any of the policy's cost, you are considered to carry it if you arrange for payment of its cost by your employees and charge at least one employee less than, and at least one other employee more than, the cost of his or her insurance. Determine the cost of the insurance, for this purpose, as explained under Coverage over the limit, later.
Group-term life insurance does not include the following insurance.
· Insurance that does not provide general death benefits, such as travel insurance or a policy providing only accidental death benefits.
· Life insurance on the life of your employee's spouse or dependent. However, you may be able to exclude the cost of this insurance from the employee's wages as a de minimis benefit. See De Minimis (Minimal) Benefits, earlier.
· Insurance provided under a policy that provides a permanent benefit (an economic value that extends beyond 1 policy year, such as paid-up or cash surrender value), unless certain requirements are met. See Regulations section 1.79-1 for details.
Page 1 * 2 * 3 * 4 * 5
