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Reporting Group life Insurance

Group-term life insurance, or group life insurance, is an insurance policy that covers a group of people, like employees in a church, rather than individuals. 

A group-term insurance plan is a fringe benefit, which is a benefit offered in addition to an employee’s regular wages. There are taxable and nontaxable fringe benefits. Group-term life insurance is a “nontaxable fringe benefit,” but only up to a certain amount. 

If the church offers Group Term Life Insurance to their employees, the Internal Revenue Service (IRS) requires the church to calculate and report the cost of coverage over $50,000. This cost is fully taxable and must be reported as additional income for any employee who receives this benefit. The amount will be displayed on your applicable employees’ W-2s in Box 12 (Code C).

So, how do you know the group-term life insurance policy value to include in each employee’s taxable income? You need to determine the monthly cost of the insurance, which depends on the coverage amount and the employee’s age.

First things first: Forget about your actual costs. The IRS has a chart you can use to find the value of the coverage to include in the employee’s taxable income.

You must first calculate the taxable portion of coverage that exceeds $50,000. To determine this amount, please review Publication 15-B, The Employer’s Tax Guide to Fringe Benefits (Page 13), as prepared by the IRS.

This chart shows the cost per $1,000 of life insurance coverage each month:

Age                                                   Cost
Under 25 …………………………….. 0.05
25 through 29 ……………………….. 0.06
30 through 34 ……………………….. 0.08
35 through 39 ……………………….. 0.09
40 through 44 ……………………….. 0.10
45 through 49 ……………………….. 0.15
50 through 54 ……………………….. 0.23
55 through 59 ……………………….. 0.43
60 through 64 ……………………….. 0.66
65 through 69 ……………………….. 1.27
70 and older …………………………. 2.06

You figure the total cost to include in the employee’s wages by multiplying the monthly cost by the number of months’ coverage at that cost.

Example. Tom’s employer provides him with group-term life insurance coverage of $200,000. Tom is 45 years old, isn’t a key employee, and pays $100 per year toward the cost of the insurance. Tom’s employer must include $170 in his wages. The $200,000 of insurance coverage is reduced by $50,000. The yearly cost of $150,000 of coverage is $270 ($0.15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. The employer includes $170 in boxes 1, 3, and 5 of Tom’s Form W-2. The employer also enters $170 in box 12 with code “C.”

If the church offers Individual Term Life, Whole Life, Universal, or other types of life insurance to their employees, the full amount of the premium is taxable and reported on Form W-2 box 1.

Contact Clergy Financial Resources to help you with the next steps.

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Clergy Financial Resources serves as a resource for clients to help analyze the complexity of clergy tax law, church payroll & HR issues. Our professionals are committed to helping clients stay informed about tax news, developments and trends in various specialty areas.

This article is intended to provide readers with guidance in tax matters. The article does not constitute, and should not be treated as professional advice regarding the use of any particular tax technique. Every effort has been made to assure the accuracy of the information. Clergy Financial Resources and the author do not assume responsibility for any individual’s reliance upon the information provided in the article. Readers should independently verify all information before applying it to a particular fact situation, and should independently determine the impact of any particular tax planning technique. If you are seeking legal advice, you are encouraged to consult an attorney.

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Clergy Financial Resources
11214 86th Avenue N.
Maple Grove, MN 55369

Tel: (763) 425-8778 
Fax: (888) 876-5101
Email: clientservices@clergyfinancial.com

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