How is gtl taxed

Each time your employee receives their paycheck, they see a whole lot of money deducted from their gross pay. Their pay stubs show the deductions from things like taxes, health insurance and perhaps more. Group term life insurance GTL is one of those items they may discover on their paystub if it is part of your employee benefits package. Even though you, as the employer, may pay the insurance premiums on GTL or pass it along to the employee, the employee may owe the taxes on it depending on the amount of coverage that is given.

GTL may be taxable or tax-free, but either way is an inexpensive way for your employee to be offered coverage they need. Whoever has this insurance has the option to choose one or more beneficiaries. For example, it may be based on one or two times what the employee makes per year. You can also offer that the employee buys more coverage on their own.

The employee is offered this benefit only as long as they are employed by you or up to a specific amount of time that is set by the policy usually an age limit. If the amount is over that threshold, it is considered a non-cash fringe benefit and taxable income for the employee. If this amount is less, it will be tax-free to the employee.

They will see the amount in box 12c of their W-2 and displayed as income in boxes 1, 3, and 5. Many employers wait until the end of the year to report taxable non-cash fringe benefits, including GTL.

That is fine, but if an employee received this benefit at some point in the year and are terminated at the time the GTL is recorded, then the employer ends up paying for the employee portion of mandatory taxes of Social Security and Medicare on those reported amounts, because there is no paycheck to deduct the taxes from.

The IRS has a table that employers can utilize to determine the cost of excess coverage. Any gift given to an employee that was paid for with Principia funds.

The only gifts that can be excluded from taxable income are perishable items such as fruit baskets, candy, ham, turkey or flowers. Any gift card, even if it to be used specifically for a food item, is still taxable. Your life insurance policy with Principia is for two times your annual salary. The employer pays nothing toward the cost.

Therefore there is no taxable income to the employees. It does not matter what the rate is, as the employer does not subsidize the cost or redistribute it between employees.

Generally, if there is more than one policy from the same insurer providing coverage to employees, a combined test is used to determine whether it is carried directly or indirectly by the employer. However, the Regulations provide exceptions that allow the policies to be tested separately if the costs and coverage can be clearly allocated between the two policies. See Regulation 1.

If coverage is provided by more than one insurer, each policy must be tested separately to determine whether it is carried directly or indirectly by the employer. This coverage is excluded as a de minimis fringe benefit.