Many companies provide employer paid group-term life insurance policies when employees sign on to become full-time. What these employers may not realize is that there is a limit to the benefit amount they can provide without tax implications. The IRS states that the first $50,000 of employer paid life insurance is tax-free. However, any employer paid benefit over $50,000 is considered imputed income and therefore is taxed as such. The IRS determines the amount an individual must pay based on their age and the dollar amount that exceeds $50,000. You can see this imputed income chart below:
| Age | Cost |
| Under 25 | $.05 |
| 25-29 | $.06 |
| 30-34 | $.08 |
| 35-39 | $.09 |
| 40-44 | $.10 |
| 45-49 | $.15 |
| 50-54 | $.23 |
| 55-59 | $.43 |
| 60-64 | $.66 |
| 65-69 | $1.27 |
| 70+ | $2.06 |
In order to contextualize this information, we will use Mary as an example. Mary’s plan provides coverage of 2x the salary to $200,000 maximum for all employees. At the end of 2019, Mary was 38 years old. During that year, she made $100,000. This is how she would find her taxable income:
| Life amount over $50,000 | = $150,000 |
| Rate (based on age 38) | = .09 |
| Times the number of months | = 12 |
| Taxable Income | = $162.00 |
As you can see above, Mary earned $100,000 salary for the year. Her coverage permits 2x her salary, so her life insurance covered $200,000 for that year. Because only the first $50,000 of her income is not taxable, she must subtract $50,000 from $200,000 to yield $150,000. From there, she would find her age in the first table and see her age rate is $.09. Finally she would multiply her $150,000 x .09 x 12 months = $162. This amount is the taxable income that she must pay.
**This is only a guide, please discuss your taxable income further with your tax attorney**