Page 16 - Employers Tax Guide to Fringe Benefits

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Exceptions. Even if you don't meet the 10-employee Figure the monthly cost of the insurance to include in
rule, two exceptions allow you to treat insurance as the employee's wages by multiplying the number of thou-
group-term life insurance. sands of dollars of all insurance coverage over $50,000
Under the first exception, you don't have to meet the (figured to the nearest $100) by the cost shown in Ta-
10-employee rule if all the following conditions are met. ble 2-2. For all coverage provided within the calendar

1. If evidence that the employee is insurable is required, year, use the employee's age on the last day of the em-
ployee's tax year. You must prorate the cost from the table
it is limited to a medical questionnaire (completed by if less than a full month of coverage is involved.
the employee) that doesn't require a physical.
2. You provide the insurance to all your full-time employ- Table 2-2. Cost Per $1,000 of Protection for
ees or, if the insurer requires the evidence mentioned 1 Month
in (1), to all full-time employees who provide evidence
Cost
the insurer accepts. Age $ 0.05
3. You figure the coverage based on either a uniform Under 25 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.06
25 through 29 .
percentage of pay or the insurer's coverage brackets 30 through 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.08
that meet certain requirements. See Regulations sec- 35 through 39 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.09
tion 1.79-1 for details. 40 through 44 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.10
Under the second exception, you don't have to meet 45 through 49 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.15
0.23
50 through 54 .
the 10-employee rule if all the following conditions are 55 through 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.43
met. 60 through 64 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.66
• You provide the insurance under a common plan cov- 65 through 69 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.27
2.06
70 and older .
ering your employees and the employees of at least
one other employer who isn't related to you. You figure the total cost to include in the employee's
• The insurance is restricted to, but mandatory for, all wages by multiplying the monthly cost by the number of
your employees who belong to, or are represented by, months' coverage at that cost.
an organization (such as a union) that carries on sub- Example. Tom's employer provides him with
stantial activities besides obtaining insurance. group-term life insurance coverage of $200,000. Tom is
• Evidence of whether an employee is insurable doesn't 45 years old, isn't a key employee, and pays $100 per
affect an employee's eligibility for insurance or the year toward the cost of the insurance. Tom's employer
amount of insurance that employee gets. must include $170 in his wages. The $200,000 of insur-
To apply either exception, don't consider employees ance coverage is reduced by $50,000. The yearly cost of
who were denied insurance for any of the following rea- $150,000 of coverage is $270 ($0.15 x 150 x 12), and is
sons. reduced by the $100 Tom pays for the insurance. The em-
ployer includes $170 in boxes 1, 3, and 5 of Tom's Form
• They were 65 or older. W-2. The employer also enters $170 in box 12 with code
• They customarily work 20 hours or less a week or 5 “C.”
months or less in a calendar year. Coverage for dependents. Group-term life insur-
• They haven't been employed for the waiting period ance coverage paid by the employer for the spouse or de-
given in the policy. This waiting period can't be more pendents of an employee may be excludable from income
than 6 months. as a de minimis fringe benefit if the face amount isn't more
than $2,000. If the face amount is greater than $2,000, the
Exclusion from wages. You can generally exclude the dependent coverage may be excludable from income as a
cost of up to $50,000 of group-term life insurance cover- de minimis fringe benefit if the excess (if any) of the cost
age from the wages of an insured employee. You can ex- of insurance over the amount the employee paid for it on
clude the same amount from the employee's wages when an after-tax basis is so small that accounting for it is un-
figuring social security and Medicare taxes. In addition, reasonable or administratively impracticable.
you don't have to withhold federal income tax or pay
FUTA tax on any group-term life insurance you provide to Former employees. When group-term life insurance
an employee. over $50,000 is provided to an employee (including retir-
ees) after his or her termination, the employee share of
Coverage over the limit. You must include in your social security and Medicare taxes on that period of cov-
employee's wages the cost of group-term life insurance erage is paid by the former employee with his or her tax
beyond $50,000 worth of coverage, reduced by the return and isn't collected by the employer. You’re not re-
amount the employee paid toward the insurance. Report it quired to collect those taxes. You must, however, pay the
as wages in boxes 1, 3, and 5 of the employee's Form employer share of social security and Medicare taxes.
W-2. Also, show it in box 12 with code “C.” The amount is Use the table above to determine the amount of additional
subject to social security and Medicare taxes, and you income that is subject to social security and Medicare
may, at your option, withhold federal income tax. taxes for coverage provided after separation from service.
Report the uncollected amounts separately in box 12 of

Page 14 Publication 15-B (2020)