Employer-paid Life Insurance in excess of
$50,000 is considered taxable income. The taxable income was based on a
standard cost table generated by the IRS (Internal Revenue Service). For many
years, the actual cost paid by companies for life insurance was much less than
the value estimated by the IRS. As a result, the taxes charged for the life
insurance benefit was unduly high.
The IRS has recently revised the table (Section 79) used to
calculate an employee's taxable imputed Life Insurance income. The change was
effective July 1,1999. The revision is a reduction in the tax rates, reflecting
the increase in average life span since the previous 1988 tables. The old and
new rates are as follows:
Cost Per $1,000
of Life Insurance
for 1 Month
Attained Age
(On last day of taxable year)
Old Rates
Table 1
New Rates
Table 1
Under 25
$.08
$.05
25-29
.08
.06
30-34
.09
.08
35-39
.11
.09
40-44
.17
.10
45-49
.29
.15
50-54
.48
.23
50-59
.75
.43
60-64
1.17
.66
65-69
2.10
1.27
70 & Older
3.76
2.06
The rates apply only to the portion of employer-paid life
insurance in excess of $50,000. The first $50,000 of employer-paid life
insurance is not taxable.
To illustrate, using the proposed rates, a 42 year old
employee with $75,000 of employer-paid life insurance will have reportable
imputed income of $2.50 per month ($.10 x 25), compared to $4.25 using the
current rates ($.17 x 25).
