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To apply either exception, do not consider employees who were denied insurance for any of the following reasons.
· They were 65 or older.
· They customarily work 20 hours or less a week or 5 months or less in a calendar year.
· They have not been employed for the waiting period given in the policy. (This waiting period cannot be more than 6 months.)
Exclusion from wages. You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee.
Coverage over the limit. You must include in your employee's wages subject to social security and Medicare taxes the cost of group-term life insurance that is more than the cost of $50,000 of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code C.
Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in the following table. Use the employee's age on the last day of the tax year. You must prorate the cost from the table if less than a full month of coverage is involved.
Table 2-2. Cost Per $1,000 of Protection For 1 Month
Age Cost Under 25 .05 25 through 29 .06 30 through 34 .08 35 through 39 .09 40 through 44 .10 45 through 49 .15 50 through 54 .23 55 through 59 .43 60 through 64 .66 65 through 69 1.27
70 and older 2.06
You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number of full months' coverage at that cost.
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