Hello XXXXXXXX,
You are referring to group term life insurance over 50K. The imputed portion of income is taxable for federal and NJ income purposes. I am not sure what you mean by "credit", but I will give you a scenario based on the rules for calculation:
You are 42 years old and your salary is 40K. Your job gives you life insurance 2x your salary, this is 80K, 30K of which is a taxable benefit (80-50K).
From the table, the imputed income is $ .10 per 1000 dollars per month, so (.10)X 30 X 12 = $36 taxable income.
The $36 is added to your NJ and federal income, and will also show up on your W2 under code "C" in box 12.
Here is the formula: http://www.payroll-taxes.com/articles/art_GTL.html
Please let me know if you need any additional assistance.
I agree with your answer for imputed income.
Here's a further explanation on the "credit".
My employer gives me money equal to the cost of 2X salary for life insurance (referred to as a flex credit because it's part of a cafeteria 125 plan). I can either use it to purchase up to 2x salary for life or I can take the money in cash less the cost of $10K life (which is mandatory). This "flex credit" was added back to my gross wages. Wasn't this already a part of the imputed income and now I'm being taxed again?
For example,
Salary = $40,000
plus GTL $36.00
plus employer credit $100
Total Gross Wages: $40,136
Hello,
I agree with your assessment. You should not be taxed on the value of the life insurance and the value of the credit. Sec. 125 specifically states items which are not includable in gross income, and the fact that employees can choose between 2 or more benefits does not make this benefit taxable. Group term life insurance (even though a portion is taxable) is specifically mentioned as a sec 125 item subject to these rules.
http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=browse_usc&docid=Cite:+26USC125
I will also ask another expert to review this case.
When I was doing research on the web about my question, I read that New Jersey is the only state where Section 125 benefits are not excluded from taxable wages?????
Yes, this is true.
There are very few NJ deductions from gross income. 401K is, but 403b is not. Also, medical insurance and sec. 125 are not.
If the $100 is a flex benefit under sec 125, and added to your NJ income only, then this would make sense, although I don't understand the concept of you paying tax on the imputed income and the flex benefit. Are you taking the option for the life insurance or the money in cash? If you take the cash benefit, that should be taxable (and not have the imputed income because you are not covered by the life insurance) If you take the life insurance benefit, then the imputed income should be taxable, but not the cash that you could have received.
Enrolled Agent
10+ years tax preparation and tax advice.
I am taking the life insurance. Thank you for your answer. I will go back to my employer and ask again about it. If you become aware of anything else, please let me know.
I appreciate your help.
Have a good day,
XXXXXXXX
I will,
Thanks much!