Corp paid NON group life insurance

[Margaret]

For 2005 I included the cost of life insurance > $50,000 on employee's W-2's for company. This year client tells me that life insurance agent said that the policies company bought were not group life insurance, therefore each employee gets Form 1099 Misc for cost of each policy. Somehow, this doesn't seem right but I cannot find in Section 79 or elsewhere the support for this. It seems to me that the entire amount would be compensation to the employee and therefore includable in the wages subject to FICA and MC. Any insights! Thanks!

[veritas]

Life insurance agents

have their own interpertaion of the tax code. Basically it's says whatever it takes to make the sale and then say whatever it takes to make you go away when problems occur. The insurance policies are income to the employees as wages.

That is if the employees' are owners of the insurance policies.

And I know some of you sell life insurance and I'm not speaking to you.

[OldJack]

Well... is the group insurance talked about in the code that of the corporation's group of employees insurance plan or the group designated as such by the insurance company paperwork? Just who's group plan is it?

[Margaret]

Good question. I interpret the "group" life insurance in the code as a plan for a group with a premium rating for a group. This little company just pays the premiums for each individual plan for each employee. in section 79, it really doesn't define group.

[OldJack]

well... it appears the code talks about a businesses group plan and that the plan cannot discriminate.

-STATUTE-
(a) General rule
There shall be included in the gross income of an employee for
the taxable year an amount equal to the cost of group-term life
insurance on his life provided for part or all of such year under a
policy (or policies) carried directly or indirectly by his employer
(or employers); but only to the extent that such cost exceeds the
sum of -
(1) the cost of $50,000 of such insurance, and
(2) the amount (if any) paid by the employee toward the
purchase of such insurance. .............
(b) .......................................

(c) Determination of cost of insurance
For purposes of this section and section 6052, the cost of
group-term insurance on the life of an employee provided during any
period shall be determined on the basis of uniform premiums
(computed on the basis of 5-year age brackets) prescribed by
regulations by the Secretary.

(d) Nondiscrimination requirements
(1) In general
In the case of a discriminatory group-term life insurance plan
-
(A) subsection (a)(1) shall not apply with respect to any key
employee, and
(B) the cost of group-term life insurance on the life of any
key employee shall be the greater of -
(i) such cost determined without regard to subsection (c),
or
(ii) such cost determined with regard to subsection (c).

[RJM]

Group with separately underwritten lives

In the insurance biz, a group is a set of insureds whose insurance is contracted by a single entity such as an employer. Whether the individuals in the group are separately underwritten is normally a function of the size of the group (differs by insurance company), or a function of that state's insurance law (which sometimes regulates how or whether a group may be underwritten, or whether community rating is imposed). So..... individuals may be rated even in a group plan. -Bob

[Margaret]

Thanks for that information but how does it apply to my question and the code? I did read the entire Sec. 79 so it didn't have to be listed in this forum except for reference again. Is this set of payments to insure the lives of 5 employees a "group" plan per code and subject to inclusion of the amount of premium for coverage in excess of $50,000 or is the entire amount to be added to each employee's wages? I don't believe the agent's comment that a 1099 should be issued. I just am not certain whether to do the calculations for the amount paying for the excess of $50,000 in coverage.

Thanks for additional comments!

[OldJack]

I just am not certain whether to do the calculations for the amount paying for the excess of $50,000 in coverage.
!

Well.... you already know but I will state for other readers, as I recall coverage in excess of $50,000 is calculated by an IRS rate table/chart and added to the employee W2 gross box 1, 3 , 5 and box 12 code C. It is subject to all payroll taxes. The chart is in pub 15b, page 10.


edit: I posted the code for others to read and maybe express their opinion.