Term Life Insurance Articles
What Are The Tax Options For Group Life Insurance?
2009-09-22
In today's economy, it's extremely reasonable, or even necessary, for business owners and employees to consider ways to reduce spending. Unfortunately that includes scaling back on benefits for employees, especially in the realms of raises, bonuses and other extras. However, employers might consider offering a group term life insurance policy, as it's a tangible, helpful benefit for workers that also comes with enormous tax benefits. Here's a look at the possible tax options that you'll have if you get term life insurance through a business.
The first $50,000 of a term life insurance plan provided through an employer, directly or indirectly, is not taxable. This is regardless of the number of workers at the company. The amount is tax-free also regardless of who pays what into the term life insurance policy - even if you split the cost with employees, any money into the plan under the $50,000 amount will not be taxed. However, once a plan costs more, it's considered a taxable fringe benefit, and therefore Medicare and Social Security taxes are applied in a calculated way.
The IRS can provide a usable chart for you that will show what taxes you can expect to pay on a term life insurance plan if you happen to be one of the people that will go over the $50,000 barrier. These taxes are calculated on a per-employee basis based on the age of the employee at the end of each year, not just the year the group term life insurance was initially purchased.
If group term life insurance coverage includes the spouse or any dependents of an employee, those benefits are also not taxable. However, like the $50,000 cap, the tax-free amount on a spouse or dependent is also limited. This limit is only $2,000. As before, after that limit, it's considered a fringe benefit and the appropriate taxes will be applied.
If your company decides to buy group term life insurance, you'll need to speak with an accountant and several companies that offer group term life insurance in order to get the best rate and tax benefits possible. Remember, that first $50,000 is tax-free for employers that pay into a plan, but the same benefits apply to employees who pay in on any basis. Because of this reason, careful paperwork is absolutely necessary in each case. Group term life insurance is a great way to save on taxes that also provides financial security for your family in the event of the unexpected. Group term life insurance policies have good tax options for small businesses and employees alike, and they're a viable way to offer a valuable benefit in hard economic times.
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In today's economy, it's extremely reasonable, or even necessary, for business owners and employees to consider ways to reduce spending. Unfortunately that includes scaling back on benefits for employees, especially in the realms of raises, bonuses and other extras. However, employers might consider offering a group term life insurance policy, as it's a tangible, helpful benefit for workers that also comes with enormous tax benefits. Here's a look at the possible tax options that you'll have if you get term life insurance through a business.
The first $50,000 of a term life insurance plan provided through an employer, directly or indirectly, is not taxable. This is regardless of the number of workers at the company. The amount is tax-free also regardless of who pays what into the term life insurance policy - even if you split the cost with employees, any money into the plan under the $50,000 amount will not be taxed. However, once a plan costs more, it's considered a taxable fringe benefit, and therefore Medicare and Social Security taxes are applied in a calculated way.
The IRS can provide a usable chart for you that will show what taxes you can expect to pay on a term life insurance plan if you happen to be one of the people that will go over the $50,000 barrier. These taxes are calculated on a per-employee basis based on the age of the employee at the end of each year, not just the year the group term life insurance was initially purchased.
If group term life insurance coverage includes the spouse or any dependents of an employee, those benefits are also not taxable. However, like the $50,000 cap, the tax-free amount on a spouse or dependent is also limited. This limit is only $2,000. As before, after that limit, it's considered a fringe benefit and the appropriate taxes will be applied.
If your company decides to buy group term life insurance, you'll need to speak with an accountant and several companies that offer group term life insurance in order to get the best rate and tax benefits possible. Remember, that first $50,000 is tax-free for employers that pay into a plan, but the same benefits apply to employees who pay in on any basis. Because of this reason, careful paperwork is absolutely necessary in each case. Group term life insurance is a great way to save on taxes that also provides financial security for your family in the event of the unexpected. Group term life insurance policies have good tax options for small businesses and employees alike, and they're a viable way to offer a valuable benefit in hard economic times.
