Publication 15-B - Employer'S Tax Guide To Fringe Benefits - 2012 Page 14
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33Exclusion from wages. You can generally exclude the
entire cost of the dependent coverage must be included in
cost of up to $50,000 of group-term life insurance from the
income unless the amount over $2,000 is purchased with
employee contributions on an after-tax basis. The cost of
wages of an insured employee. You can exclude the same
the insurance is determined by using Table 2-2 above.
amount from the employee’s wages when figuring social
security and Medicare taxes. In addition, you do not have
Former employees. When group-term life insurance
to withhold federal income tax or pay FUTA tax on any
over $50,000 is provided to an employee (including retir-
group-term life insurance you provide to an employee.
ees) after his or her termination, the employee share of
social security and Medicare taxes on that period of cover-
Coverage over the limit. You must include in your
age is paid by the former employee with his or her tax
employee’s wages the cost of group-term life insurance
return and is not collected by the employer. You are not
beyond $50,000 worth of coverage, reduced by the
required to collect those taxes. Use the table above to
amount the employee paid toward the insurance. Report it
determine the amount of social security and Medicare
as wages in boxes 1, 3, and 5 of the employee’s Form W-2.
taxes owed by the former employee for coverage provided
Also, show it in box 12 with code “C.” The amount is
after separation from service. Report those uncollected
subject to social security and Medicare taxes, and you
amounts separately in box 12 of Form W-2 using codes
may, at your option, withhold federal income tax.
“M” and “N.” See the Instructions for Forms W-2 and W-3
Figure the monthly cost of the insurance to include in the
and the Instructions for Form 941.
employee’s wages by multiplying the number of thousands
of dollars of all insurance coverage over $50,000 (figured
Exception for key employees. Generally, if your
to the nearest $100) by the cost shown in the following
group-term life insurance plan favors key employees as to
table. For all coverage provided within the calendar year,
participation or benefits, you must include the entire cost of
use the employee’s age on the last day of the employee’s
the insurance in your key employees’ wages. This excep-
tax year. You must prorate the cost from the table if less
tion generally does not apply to church plans. When figur-
than a full month of coverage is involved.
ing social security and Medicare taxes, you must also
include the entire cost in the employees’ wages. Include
Table 2-2. Cost Per $1,000 of Protection For 1 Month
the cost in boxes 1, 3, and 5 of Form W-2. However, you do
Age
Cost
not have to withhold federal income tax or pay FUTA tax on
Under 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ .05
the cost of any group-term life insurance you provide to an
25 through 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.06
employee.
30 through 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.08
For this purpose, the cost of the insurance is the greater
35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.09
40 through 44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.10
of the following amounts.
45 through 49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.15
•
The premiums you pay for the employee’s insur-
50 through 54 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.23
55 through 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.43
ance. See Regulations section 1.79-4T(Q&A 6) for
60 through 64 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.66
more information.
65 through 69 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.27
•
70 and older . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.06
The cost you figure using Table 2-2.
You figure the total cost to include in the employee’s
For this exclusion, a key employee during 2012 is an
wages by multiplying the monthly cost by the number of full
employee or former employee who is one of the following
months’ coverage at that cost.
individuals. See section 416(i) of the Internal Revenue
Code for more information.
Example. Tom’s employer provides him with
group-term life insurance coverage of $200,000. Tom is 45
1. An officer having annual pay of more than $165,000.
years old, is not a key employee, and pays $100 per year
2. An individual who for 2012 was either of the follow-
toward the cost of the insurance. Tom’s employer must
ing.
include $170 in his wages. The $200,000 of insurance
coverage is reduced by $50,000. The yearly cost of
a. A 5% owner of your business.
$150,000 of coverage is $270 ($.15 x 150 x 12), and is
b. A 1% owner of your business whose annual pay
reduced by the $100 Tom pays for the insurance. The
was more than $150,000.
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
A former employee who was a key employee upon
“C.”
retirement or separation from service is also a key em-
Coverage for dependents. Group-term life insurance
ployee.
coverage paid by the employer for the spouse or depen-
Your plan does not favor key employees as to partici-
dents of an employee may be excludable from income as a
pation if at least one of the following is true.
de minimis fringe benefit if the face amount is not more
•
than $2,000. If the face amount is greater than $2,000, the
It benefits at least 70% of your employees.
Page 14
Publication 15-B (2012)
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