December 7, 2015

Taxation of Supplemental Life: A New Ruling (article)

Internal Revenue Code Section 79 provides limited tax-favored status for group term life insurance.  In a nutshell, up to $50,000 of employer-provided group term life insurance is excluded from an employee’s income.  Amounts over $50,000 must be imputed into the employee’s income using the Table I rates.  Generally, this is true for both basic and supplemental life insurance. 


In a recent Private Letter Ruling (PLR), the IRS was asked whether supplemental life insurance could be treated as a separate policy and therefore not subject to the income imputation.  In making its determination, the IRS opined that the supplemental life insurance was not carried directly or indirectly by the employer.  Further, it determined that no employee was charged above the Table I rate; in other words, there was no straddling.  In this instance, the IRS concluded that there were two policies and that the supplement life insurance was independent of the basic life insurance.  Because the policy was not carried directly or indirectly by the employer, it would not be subject to income imputation. 


Note: A Private Letter Ruling  is only binding upon the taxpayer requesting it and cannot be relied upon or used as precedent; however, it does give an indication of how the IRS looks at these matters.

The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.  

Accelerated Recovery Resources

Access articles and tools to help your business generate cash, improve leverage, and align & transform as you recover from the pandemic.

COVID-19 Resources

Access all COVID-19 related articles to help your business respond to the pandemic.

Insights in Your Inbox