are group term life insurance payouts taxable
group term life insurance plans. The value of employer-provided group term life insurance up to $50,000 is tax exempt under IRC. Section 79(a). The value of amounts exceeding $50,000 is taxable to the employee or retiree. In this situation, some life insurance companies will pay interest to you while they are holding the balance of the death benefit pay-out. Interest is considered to be income by the IRS anytime it is earned. If you gain any interest on the payout of your life insurance, this amount is taxable. This will not decrease the amount that is paid out below the original coverage amount, however, you will only be taxed on the interest earned from this benefit not the benefit itself. If you own your life insurance policy, the payout from your life insurance is considered to be part of your estate. Let’s say your estate is worth $4,500,000 and you have a million in life insurance, your estate would be valued at $5,500,000. Many employers include Group Term Life Insurance as part of their employee benefit package. The Internal Revenue Code. provides regulations to be followed in computing taxable income for employees and dependents covered under a Group Term. Life Insurance Plan. Premiums paid for group life insurance coverage up to $50,000 are not considered income to the employee and are entirely deductible by the employer as an ordinary business expense. For coverage amounts over $50,000, a portion of the premiums paid by the employer are considered income to the employee. Using the Uniform Premium Table in IRC Section 79, the dollar amount added to the worker's taxable income is calculated based on the employee's age and the size of the life insurance policy. The rules outlined in this Bulletin relative to employee group term life insurance also apply to the. calculation of taxable amounts for dependent life coverage. To calculate imputed income, Table I rates are used based on the dependent’s age in the same manner used for employee group. term life coverage. In addition to the income tax assessed on amounts of group term life insurance in excess of $50,000, it also requires that FICA. (Social Security and Medicare Hospital Insurance) taxes be applied to amounts of group term life in excess of $50,000. Estates Worth Less Than $5.43 Million. Only the amount of your estate that exceeds the Estate Tax Exclusion amount can be taxed, so if your estate including life insurance is not more than $5,430,000, your beneficiaries will not owe any taxes on the life insurance pay out. Please keep in mind that the Estate Tax Exclusion amount can change. If your small business provides group life insurance to workers, determining if the premiums paid for that policy are taxable to your workers is based on a number of factors including the amount of coverage and how much the employer paid versus how much the employee paid. If the entire cost of the group life insurance coverage is paid by the employee, there are no income tax consequences associated with owning a policy. Other than simply providing access to the product, the employee receives no direct or indirect benefit from the company that could be construed as income.
Yes, the value of amounts exceeding $50,000 is taxable to the employee or retiree.