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Merlo
Merlo, Accountant
Category: Tax
Satisfied Customers: 9783
Experience:  25+ years tax consulting. Specializing in returns for US citizens living abroad
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If an employer sets up a Group Term Life Insurance Plan ...

Resolved Question:

If an employer sets up a Group Term Life Insurance Plan that gives Salaried employees $50,000 of coverage, but gives all other employees $15,000--is this going to make the benefit taxable?
Submitted: 8 years ago.
Category: Tax
Expert:  Merlo replied 8 years ago.

HelloCustomer

The Internal Revenue Code provides an exclusion for the first $50,000 of group-term life insurance coverage provided under a policy carried directly or indirectly by an employer. There are no tax consequences if the total amount of such policies does not exceed $50,000. A taxable fringe benefit arises if coverage exceeds $50,000 and the policy is considered carried directly or indirectly by the employer.

It does not matter that one group of employees is receiving a different level of coverage. That is not what determines whether or not the benefit is taxable.

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Customer: replied 8 years ago.
So its ok to set up Classes? It used to be that there couldn't be more than 2 1/2 times difference between 2 classes--Is that still true?
(ie 50k and 20K would be ok but 50 k and 15k would be a problem)
Expert:  Merlo replied 8 years ago.

HelloCustomer

There are still rules in place that govern the taxing situation on what might be considered a discriminatory plan, but only as the plan favors "key" employees.

The term "key employee" as defined by IRC Code 416 means an employee who, at any time during the plan year, is an officer of the employer having an annual compensation greater than $130,000, a 5-percent owner of the employer, or a 1-percent owner of the employer having an annual compensation from the employer of more than $150,000. Merely being a "salaried" employee does not fall under the class of "key" employee, and so the discriminatory rules do not apply in that case.

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