[Individual]Group-Term Life Insurance (Feb-17-2011, 61 days left)

What's Group-term life insurance?

It's term life insurance protection (insurance for a fixed period of time) that:

• Provides a general death benefit,
• Is provided to a group of employees,
• Is provided under a policy carried by the employer, and
• Provides an amount of insurance to each employee based on a formula that prevents individual selection

Here is the tax rule for group-term life insurance

Nontaxable income	Taxable income
Cost of up to 50,000 of group-term life insurance coverage provided by employer	Excess of 50,000 the cost of coverage provided by employer - any amount you pay toward the purchase of insurance Multiple employers: you only can exclude total cost of 50,000 of coverage no matter the insurance is provided by a single employer or multiple employer. So you must adjust your taxable income. Limits to subtraction: you cannot reduce the amount to include in your income by: Payments for coverage in a different tax year, Payments for coverage through a cafeteria plan, unless the payments are after-tax contributions, Payments for coverage not taxed to you because of the exceptions .
	Permanent benefits=the cost of the permanent benefits - the amount you pay for them. Examples are paid-up or cash surrender value
Entire cost excluded: if any of the following circumstances apply: --Permanently and totally disabled and have ended your employment --Employer is the beneficiary of the policy --A charitable organization to which contributions are deductible is the only beneficiary --the plan existed on Jan-1-1984, and a) you retired before Jan-2-1984; b) you reached age 55 before Jan-2-1984 and employed in 1983	Entire cost taxed: if either of the following circumstances apply: --The insurance is provided by your employer through a qualified employees' trust, such as a pension trust or a qualified annuity plan. --You are a key employee and employer's plan discriminates in favor of key employees.

You can use worksheet-Figuring the cost of Group-Term Life Insurance to Include in income to calculate your number. (See Pub 525)

PSQ

Source: http://www.irs.gov