©2006 Proctor & Company
The cost of group term life insurance may be taxable income to an employee
Andrew J. Mann
Treasurer

Here is how to determine whether or not the cost of group term life insurance is taxable to an employee:

• Generally the cost of up to $50,000 of group term life insurance coverage is tax exempt.

• The cost of coverage in excess of $50,000 is taxable to the employee.

• The excess cost is calculated on a monthly basis.

• First determine the amount of group term coverage for the employee each month.

• Then subtract $50,000 from each month’s coverage.

• Apply the appropriate rate from the “Table I” to the
balance.

• The result is a taxable fringe benefit that must be included in gross income on the employee’s W-2 at year-end.

• For example: an employee aged 33 had $80,000 of group term coverage in place for the entire year. For the taxable amount multiply .08 (cost per $1,000 for one month) times 30 ($80,000-$50,000) times 12 (number of months in place), or $28.80.

Complete instructions and an Excel template for computing these costs are available by contacting: Andrew Mann, amann@proctorandcompany.com or 508-370-7777.