State Group Life -- Taxable Life Insurance Calculation On Coverage Over $50,000
Section 79 of the Internal Revenue Service Code limits the tax-free treatment of your state group life insurance premium deductions (excluding Spouse and Dependent) under the Automatic Premium Conversion component of the Employee Reimbursement Account (ERA) when your total plan coverage is over $50,000. Under Section 79, your state-provided life insurance coverage in excess of $50,000 is assessed a tax liability which is offset by your payroll deducted premiums. Only the premium deduction not needed to offset this liability can be taken on a tax-free basis (see example below).
The Section 79 tax liability is assessed on your total state group life insurance plan coverage (Basic + Supplemental + Additional) over $50,000 regardless of your ERA participation. Your participation in the Automatic Premium Conversion component of the program does not in any way increase your tax liability. However, if the amount of your employee-paid premium is greater than your tax liability, the excess over your liability can be taken tax-free with the Automatic Premium Conversion feature. For most people, their tax liability is more than offset by their employee-paid premium amounts.
The taxable portion of your coverage over $50,000 is computed using the following IRS table (IRS Regulation 1.79-3). Below the table is an example of a calculation of the tax-free premium amount.
IRS TABLE
UNIFORM PREMIUMS FOR $1,000 OF GROUP-TERM LIFE INSURANCE
Age |
Cost per $1,000 |
Age |
Cost per $1,000 |
Age |
Cost per $1,000 |
||
Under 25 |
$0.05 |
40-44 |
$0.10 |
60-64 |
$0.66 |
||
25-29 |
$0.06 |
45-49 |
$0.15 |
65-69 |
$1.27 |
||
30-34 |
$0.08 |
50-54 |
$0.23 |
70 & over |
$2.06 |
||
35-39 |
$0.09 |
55-59 |
$0.43 |
Example
Calculation of Tax-Free Life Premium Amount
In this example of a 34 year old employee, the employee's monthly life insurance premium deduction is $4.25. Of this amount, $2.25 is used to offset the Section 79 tax liability on the $25,000 in coverage over $50,000. This leaves $2.00 of the premium deduction amount, which can be taken tax free under the Automatic Premium Conversion component of the ERA program.
Coverage |
Cost Per $1,000 |
Monthly Premium |
|
Type |
Amount |
||
| Basic | $25,000 |
$ .05 |
$ 1.25 |
| 100% Supplemental | $25,000 |
$ .05 |
$ 1.25 |
| Additional | $25,000 |
$ .07 |
$ 1.75 |
| Totals | $75,000 |
$4.25 |
|
Total Coverage |
Tax Free Coverage |
Taxable Coverage |
$75,000 |
$50,000 |
$25,000 |
Total Premium |
Taxable Premium |
Tax Free Premium |
$4.25 |
$2.25* |
$2.00 |
| *$25,000 x .09/$1,000 (see table above) = $ 2.25 per month | ||
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