Imputed Income for Life Insurance

Imputed income amounts for Basic and Voluntary Life plans are calculated using the volume of coverage on the plan (V) and an age-banded rate (r), which is determined by the IRS using the employee's age on the last day of the employee's tax year.

IRS Regulation 79 Table 1: Rates for Group Term Life

Age Bracket Monthly Cost per $1000 of Coverage over $50,000 (r)
<25 $ 0 .05
25 to 29 $ 0 .06
30 to 34 $ 0 .08
35 to 39 $ 0 .09
40 to 44 $ 0 .10
45 to 49 $ 0 .15
50 to 54 $ 0 .23
55 to 59 $ 0 .43
60 to 64 $ 0 .66
65 to 69 $ 1 .27
70+ $ 2 .06
Imputed Income amount (per month) = ((V-$50,000) / 1000) * r

Both V and r can change throughout the plan year according to the carrier’s rate redetermination schedule.

Example

Basic Life Plan

A 45-year-old employee receives $200,000 of Basic coverage which is paid entirely by his employer. His imputed income for this coverage is $270, which is entered into boxes 1, 3, 5 of the employee's W-2, and in box 12 with a code "c".

Excess coverage = 200,000 - 50,000 = $150,000
 Monthly imputed income = (150,000 / 1000) * .15  = $22.50
 Yearly imputed income = 22.50 x 12 = $270

Voluntary Life Plan

A 45-year-old employee pays $100 per year for $200,000 in Voluntary Life insurance. The $200,000 of coverage is reduced by $50,000. The yearly cost of $150,000 of coverage is $270 ($ 0 .15 x 150 x 12), and is reduced by the $100 he pays for the insurance, $170 total. The employer includes $170 in boxes 1, 3, and 5 of the employee’s W-2, and in box 12 with code “C.”

Please refer to this IRS page and subsequent publication for more information. You will need to consult with a Tax Professional if you have any specific questions about how Imputed Income is calculated.

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