An employer can provide up to
$50,000 of group life insurance coverage to employees and former
employees tax free. However, the employer may not discriminate nor be
directly, or indirectly, the beneficiary under the contract. Amounts
provided in excess of $50,000 of group life insurance are taxable to the employee as wages,
subject to Social Security tax withholding.
Transition Rules for 1999: The IRS
provides the following guidelines to allow employers to comply with the
mid-year group life insurance rate change with minimum inconvenience:
• Employers have until the last pay
period of 1999 to make any needed adjustments of amounts withheld for FICA
purposes.
• Until January 1, 2000, an employer may calculate imputed income for
all employees under age 30 (including those under age 25) using the age
bracket for ages 25 to 29.
Dependent Group Life Insurance Coverage: Up
to $2,000 of
group life insurance may be provided for an employee’s spouse or
dependent as a "de minimis" fringe benefit. Coverage in excess
of $2,000 of group life insurance is taxable to the employee using the uniform premiums table.
General Requirements—Definition of Group
Life Insurance:
1) Group life insurance provides a general death benefit that is
excludable from gross income,
2) Group life insurance is provided to a group of employees,
3) Group life insurance is provided under a policy carried directly or indirectly by the
employer, and
4) Group life insurance provides an amount of insurance to each employee based on a formula
using factors such as age, years of service, compensation, or position
that prevents individual selection of group life insurance coverage.
Groups: Subject to certain
exceptions, the group plan must provide group life insurance coverage for at least 10 full-time
employees.
If there are fewer than 10 full-time
employees, then all such employees must be covered, with the following
exceptions:
1) Employees 65 or older,
2) Employees working 20 hours or less per week or 5 months or less in any
calendar year, and
3) Employees who have not been employed for the waiting period specified
in the policy. Waiting period cannot exceed 6 months.
