When employer-provided group term life insurance (GTLI) exceeds $50,000 for an employee, the value of the excess coverage (as determined by the IRS) must be reported as income, minus any after-tax premiums paid by the employee.
The imputed cost (value of the excess benefit) coverage is subject to Social Security and Medicare taxes, so you must report that amount directly to us for inclusion on the employee s W-2 form and on the employer s 940 and 941 forms.
If you have employees who have more than $50,000 of company-paid GTLI, you need to setup two company contribution payroll items for:
- The nontaxable portion of the premium which pays the first $50,000 of the GTLI for any employee. This part of the premium is not reported. When setting up this payroll item, choose a tax tracking type of None.
- The taxable portion of the premium, which pays the excess over $50,000 of group term life insurance for an employee. When setting up this payroll item, choose the Taxable Grp Trm Life tax tracking type.
To calculate the value of the excess benefit coverage:
- Determine the excess of the GTLI (Value of GTLI - $50,000 allowable).
- Divide the excess amount by 1,000.
- Multiply the result by the age-appropriate value in the table below.
- Multiply that result by the number of months of coverage.
Subtract after-tax premiums paid by the employee. For example, an employee is 40 years old and does not pay any of the premiums for GTLI for the whole year. The value of the GTLI was $75,000.
- Determine excess (Value of GTLI - $50,000 allowable) - $75,000 - $50,000 = $25,000 (excess)
- Divide the excess amount by 1,000 - $25,000 /$ 1,000 = 25
- Multiply the result of #2 by the age value in the table below - 25 x $0.10 = $2.50
- Multiply the result of #3 by the number of months of coverage - $2.50 x 12 (months) = $30.00
$30.00 is the amount to be added to the employee s W-2 as income for the premiums paid by the company on the excess $25,000.
Value of GTLI per $1,000 of coverage per month*.
*Values in the table are established by the IRS and bear no relationship to the amount of premiums actually paid by the employer. See Publication 15-B, Employer's Tax Guide to Fringe Benefits for more information.
Note: If GTLI has been recorded for a terminated employee (or any employee who will not receive another paycheck before the end of the year), Social Security and Medicare taxes owed by the employee that were not collected will be charged to your company.
If any of the following exceptions apply, the Full Monetary Value (FMV) of GTLI over $50,000 can be excluded from the employee s income:
- If the beneficiary of the life insurance policy is the employer
- If the beneficiary is a charitable organization
- If the employee terminates employment during the year because of a permanent disability
Quickbooks Desktop Payroll Assisted, Basic, Standard, & Enhanced Payroll to Set up GTLI:
To set up using EZ Setup:
- From Lists on the top menu bar, select Payroll Item List.
- Select Payroll Item and select New Payroll Item, select New.
- Select EZ Setup, select Next.
- Select Insurance Benefits.
- Follow the on-screen instructions. You will be prompted to answer a series of questions based on the item type. (On the right side of each screen there are help topics to assist you.)
To set up using Custom Setup:
- From Lists on the top menu bar, choose Payroll Item List,
- Select the Payroll Item button, select New.
- Select Custom Setup.
- Choose Company Contribution and select Next.
- Name the payroll item and select Next.
- Choose the name of the liability agency, Liability Account, and select Next.
- Tax Tracking Type is Taxable Grp Trm Life, select Next.
- Do not uncheck any of tax selections, select next.
- Choose Neither on Calculate Based on Quantity and select Next.
- Leave the Default Rate and Limit screen blank and select Finish.