HR Fast Facts: Imputed Income for Group-Term Life Insurance

Imputed income are benefits employees receive that are not part of their salary or wages, but are still taxed as part of their income.

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The first $50,000 of coverage volume for any life insurance plan is a tax-free benefit for employees. If an employee’s Basic Life plan volume is greater than $50,000, the IRS calculates imputed income for the value of the premium paid by the employer for the excess coverage, and adds this amount to the employee’s gross income.

If an employee’s Voluntary Life plan volume is greater than $50,000 and the employee’s rate falls below the IRS rates stated in Publication 15-B Table 2-2, the IRS may calculate imputed income for the value of the difference in premium paid by the employee for the excess coverage, and add this amount to the employee’s gross income.

Imputed income applies to the value of the premium paid by the employer for the coverage volume, and not the actual death benefit paid to beneficiaries.

Depending on the plan type, imputed income is calculated differently (or not at all).

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