Calculating GTL insurance
Latisha O’Neal CPP, payroll supervisor at Bama Companies Inc, and a member of PAYTECH’s board of contributing writers, sets out details relevant to the USA
O ne of the most common benefits companies provide for their employees is group-term life (GTL) insurance. Payroll professionals will need to calculate the taxable income for this and other fringe benefits. The calculation is not a difficult one but is frequently misunderstood. When determining the taxation of GTL insurance, a review of the company policy and benefit plan should be completed. Some of the questions to ask are: ● What type of life insurance is being offered? ● Is the life insurance part of a cafeteria plan? ● Do the employees contribute to the cost of the policy? The type of coverage is important to this process. To qualify for the exclusion of income, the life insurance policy offered must be a general benefit policy without a cash value. The value of all general death benefit policies is included in the amount of insurance as a fringe benefit. A common practice is to have two programs for GTL insurance. For example: the company offers GTL insurance for $50,000 and the option for employees to enrol in supplemental life insurance. If both policies provide a general death benefit, the value of both policies needs to be considered when calculating the fringe benefit for the employee.
Example Larry is employed by White Lighting Company with a biweekly pay schedule. White Lighting provides $50,000 of GTL insurance and Larry has elected additional supplemental life coverage of $150,000. Larry contributes $10 after-tax and his birthday is October 28, 1964. Total coverage: $200,000 ($50,000 + $150,000) Minus amount excluded: $50,000 = $150,000 Divide by $1,000 = 150 Multiply by 0.23 (age 50–54)= monthly imputed income of $34.50 Subtract employee’s monthly after- tax contribution of $21.67 ($10 × 26 biweekly = $260 annually ÷ 12) The APA, www.americanpayroll.org, is the USA’s leader in payroll education, publications, and training. This nonprofit association conducts more than 300 payroll training conferences and seminars across the country each year and publishes a complete library of resource texts and newsletters. Representing more than 21,000 members, APA is the industry’s highly respected and collective voice in Washington, D.C. spearheads the APA’s global initiatives to provide the world with a leading community of payroll leaders, managers, practitioners, researchers, and technology experts. Subscribers connect with each other through networking discussions, collaborative opportunities, and access to education and publications dedicated to global payroll strategies, knowledge, research, employment, and training. GPMI also publishes several global payroll texts and white papers as a benefit to subscribers. Monthly imputed income = $12.83($34.50 - $21.67) The Global Payroll Management Institute (GPMI), www.GPMInstitute.com,
The next step will be to gather information about the employee. The information needed is: ● employee’s age ● total value of the policies ● employee’s portion of the premium ● whether the premium is withheld as a pre- or post-tax deduction. ...general benefit policy without a cash value Armed with these facts, the imputed income can be obtained by following these steps: 1. Determine the total value of GTL insurance coverage. 2. Subtract the excluded amount of $50,000. 3. Divide the excess amount of coverage by $1,000. 4. Find the rate in the table based on the employee’s age as of the end of the year. 5. Multiply the rate from the table and the value from step 3. 6. Deduct the employee’s after-tax contribution (if any). 7. Add the excess amount to the employee’s income, withhold and pay social security and Medicare taxes, and report the amount as required. There are a few points to remember. First, the age rate table is based on a monthly schedule. Second, the employee’s contribution must be converted to a monthly rate or the monthly rate from the table must be converted to the employee’s pay period. Third, if the employee’s contribution is deducted pre-tax, then the contribution is not deducted from the imputed income for the employee. o This article was published in the June 2018 issue of the American Payroll Association’s PayTech magazine.
Age
*Cost $
Under 25
0.05 0.06 0.08 0.09 0.10 0.15 0.23 0.43 0.66 1.27 2.06
25–29 30–34 35–39 40–44 45–49 50–54 55–59 60–64 65–69
70+
* Per $1,000 of protection for one month
| Professional in Payroll, Pensions and Reward | February 2019 | Issue 47 50
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