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What Fringe Benefits Am I Paying Taxes On? 
 
by kmhagen July 22, 2005

Group-Term Life Insurance

The cost of group-term life insurance coverage provided by your employer is exempt from federal income tax, and up to $50,000 of group-term life insurance coverage is also excluded from wages subject to social security and Medicare taxes. The cost of coverage over that amount is subject to social security and Medicare tax, and will be reported in box 12, code C on your W-2.

In order to qualify as excludible, the group-term life insurance must provide a general death benefit that is not included in employees’ income, the policy must cover at least 10 full-time employees, and the insurance must be based on a formula that prevents individual selection.

There are certain exceptions to the 10 full-time employee requirement:

  • Evidence of an employee’s insurability must be limited to a medical questionnaire and not a physical.
  • Insurance is provided to all full-time employees.
  • Coverage must be based on a uniform percentage of pay, or the insurer’s coverage brackets.

Employees for this purpose include current employees, full-time insurance agents (statutory employees), former employees, and leased employees who have provided substantially full-time services for at least one year.

The cost of coverage in excess of $50,000 must be included in employees’ compensation subject to social security and Medicare taxes, reduced by the amounts employees pay for this coverage.

If group-term life insurance favors key employees, the entire cost of the coverage is included in those key employees’ wages subject to social security and Medicare taxes.

Retirement Planning Services

Retirement planning services provided by your employer are not included in your income. This does not apply to services for tax preparation, accounting, legal, or brokerage services.

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