Publication 15-B - Employer'S Tax Guide To Fringe Benefits - 2012 Page 13
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33selection. This formula must use factors such as the
For this rule, count employees who choose not to re-
employee’s age, years of service, pay, or position.
ceive the insurance unless, to receive it, they must contrib-
ute to the cost of benefits other than the group-term life
•
You provide it under a policy you directly or indirectly
insurance. For example, count an employee who could
carry. Even if you do not pay any of the policy’s cost,
receive insurance by paying part of the cost, even if that
you are considered to carry it if you arrange for
employee chooses not to receive it. However, do not count
payment of its cost by your employees and charge at
an employee who must pay part or all of the cost of
least one employee less than, and at least one other
permanent benefits to get insurance, unless that employee
employee more than, the cost of his or her insur-
chooses to receive it. A permanent benefit is an economic
ance. Determine the cost of the insurance, for this
value extending beyond one policy year (for example, a
purpose, as explained under
Coverage over the
paid-up or cash-surrender value) that is provided under a
limit, later.
life insurance policy.
Group-term life insurance does not include the following
Exceptions. Even if you do not meet the 10-employee
insurance.
rule, two exceptions allow you to treat insurance as
group-term life insurance.
•
Insurance that does not provide general death bene-
Under the first exception, you do not have to meet the
fits, such as travel insurance or a policy providing
10-employee rule if all the following conditions are met.
only accidental death benefits.
•
Life insurance on the life of your employee’s spouse
1. If evidence that the employee is insurable is re-
or dependent. However, you may be able to exclude
quired, it is limited to a medical questionnaire (com-
the cost of this insurance from the employee’s
pleted by the employee) that does not require a
wages as a de minimis benefit. See
De Minimis
physical.
(Minimal)
Benefits, earlier in this section.
2. You provide the insurance to all your full-time em-
•
Insurance provided under a policy that provides a
ployees or, if the insurer requires the evidence men-
permanent benefit (an economic value that extends
tioned in (1), to all full-time employees who provide
beyond 1 policy year, such as paid-up or cash sur-
evidence the insurer accepts.
render value), unless certain requirements are met.
3. You figure the coverage based on either a uniform
See Regulations section 1.79-1 for details.
percentage of pay or the insurer’s coverage brackets
that meet certain requirements. See Regulations
Employee. For this exclusion, treat the following individu-
section 1.79-1 for details.
als as employees.
Under the second exception, you do not have to meet
the 10-employee rule if all the following conditions are met.
1. A current common-law employee.
•
You provide the insurance under a common plan
2. A full-time life insurance agent who is a current statu-
covering your employees and the employees of at
tory employee.
least one other employer who is not related to you.
3. An individual who was formerly your employee under
•
The insurance is restricted to, but mandatory for, all
(1) or (2).
your employees who belong to, or are represented
4. A leased employee who has provided services to you
by, an organization (such as a union) that carries on
on a substantially full-time basis for at least a year if
substantial activities besides obtaining insurance.
the services are performed under your primary direc-
•
tion and control.
Evidence of whether an employee is insurable does
not affect an employee’s eligibility for insurance or
Exception for S corporation shareholders. Do not
the amount of insurance that employee gets.
treat a 2% shareholder of an S corporation as an employee
of the corporation for this purpose. A 2% shareholder is
To apply either exception, do not consider employees
someone who directly or indirectly owns (at any time dur-
who were denied insurance for any of the following rea-
ing the year) more than 2% of the corporation’s stock or
sons.
stock with more than 2% of the voting power. Treat a 2%
•
They were 65 or older.
shareholder as you would a partner in a partnership for
•
fringe benefit purposes, but do not treat the benefit as a
They customarily work 20 hours or less a week or 5
reduction in distributions to the 2% shareholder.
months or less in a calendar year.
•
The 10-employee rule. Generally, life insurance is not
They have not been employed for the waiting period
given in the policy. This waiting period cannot be
group-term life insurance unless you provide it to at least
more than 6 months.
10 full-time employees at some time during the year.
Publication 15-B (2012)
Page 13
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