Employees may be eligible to purchase benefits through their employers group Life Insurance Plans. Check with the human resource person or human resource department at your job to find out if and when you may be eligible for Life Insurance benefits for you as well as for your spouse and or children. Participating in your employers Group Life Insurance plans for you and your children may also be a simple process. The employee may be required to pay a portion and or any premiums through a payroll deduction.
The taxable values of these benefits still have to be calculated using the Internal Revenue Services table rather than what is paid in premiums.
Life Insurance Premiums
The employee is always responsible for paying the FICA portion of the life insurance policy which he or she opted in. Ultimately, it is your choice to choose to opt in and be a part of your Employers Group Life Insurance policy. Keep in mind, that after you have decided to be apart of, if you choose, the human resource person should inform you as to regard to any deductions that may come out of your pay check. In most cases, the Life Insurance premium’s portion that you may be responsible for can be added to a pay check before the end of the year and the FICA taxes withheld from the employee’s regular pay check may or not be partially a deduction from your pay check. This must be done at least once per year.
Value of Term Life Insurance
The value of Life Insurance is not subject to income tax withholding. There are exceptions to this rule. If an employer is unable to collect the FICA taxes before the end of the year from the employee or the employee is terminated before the tax can be withheld, the employee is still responsible for paying the FICA tax on the Life Insurance policy that you, the employee, signed up for. The employer must pay the employee’s share of the FICA taxes, but the value of the tax paid must be added to the employee’s wages using the gross-up method.
All employers must be able to correctly report the value of the benefit.
The face market values of General Term Life Insurance plans themselves are not taxable for FUTA purposes. However, it must still be reported on Form 940 at the end of the year. The value should be included on Line 1 of Part I of Form 940, and it should be reported as excludable wages on Line 2.
The Guide to Fringe Benefits, which includes these employers Life Insurance policies are available to you through either the human resource department, library or on-line. Research is your ultimate tool here. If the life insurance policy does not qualify as General Term Life Insurance, then the cost of the insurance (what the employer pays in premiums) must be included in the employee’s taxable compensation.
So if employers follow the guidelines provided above, they should be able to provide employees with group term life insurance and be able to calculate and report the value of the benefit properly. Start today and get cheaper term life insurance coverage which will protect your loved ones.