Situation:
For an employee benefit, a small business employer pays the premiums for (non-group) term life insurance policies obtained by the employees themselves. The face value of these policies is significantly above $50,000.
Questions:
1) Are these payments taxable to the employee?2) If so, can the Uniform Premium Table be used to determine the taxable amount? (Remember, this is not group insurance)
Only employer group life insurance gets favorable tax treatment. As this is not group insurance, the premium payment is considered wages (Box 1 of the W-2) subject to payroll taxes and income tax withholding. The amount of the insurance is not relevant.
Thank you for the answer. It is as I suspected.
Is there a particular source I can point the employer to? He has received several conflicting answers from different accountants he has used over the years.
The best I can do for you is tell the employer to see IRS Pub 15 (Circular E)- Employers Tax Guide. It tells you that fringe benefits are taxable wages. See also IRS Pub 15-A Employers Supplemental Tax Guide with more info on Wages and finally IRS Pub 15-B Employers Tax Guide To Fringe Benefits that has the info on those benefits that are not taxable. There you will see that only Group Term Life Insurance can be excluded from income.
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