If your company benefits include group term life insurance paid by your employer, a portion of the premiums paid for the coverage may be taxable. Depending on the amount of coverage you’re provided, some of it may create undesirable income tax consequences for you. Show
The cost of the first $50,000 of group term life insurance coverage that your employer pays for is excluded from taxable income and doesn’t add anything to your income tax bill. That’s good news. But the employer-paid cost of group term coverage over $50,000 is taxable income to you. That means it will be included in the taxable wages reported on your Form W-2 — even if you never actually receive it. In other words, it’s “phantom income.” Have you reviewed your W-2? What should you do if you think the tax cost of employer-provided group term life insurance is too high? First, you should establish if this is actually the case. If a specific dollar amount appears in Box 12 of your Form W-2 (with code “C”), that dollar amount represents your employer’s cost to provide you with group-term life insurance coverage of more than $50,000, minus any amount you paid for the coverage. You’re responsible for federal, state and local taxes on the amount that appears in Box 12 and for the associated Social Security and Medicare taxes as well. But keep in mind that the amount in Box 12 is already included as part of your total “Wages, tips and other compensation” in Box 1 of the W-2. It’s the amount in Box 1 that is reported on your tax return. What are your options? If you decide that the tax cost is too high for the benefit you’re getting in return, you should find out whether your employer has a “carve-out” plan. That’s a plan that allows selected employees to carve out from the group term coverage. If your employer’s plan doesn’t offer a carve-out, ask if they’d be willing to create one. There are several different types of carve-out plans that employers can offer to their employees. For example, the employer can continue to provide $50,000 of group term insurance (since there’s no tax cost for the first $50,000 of coverage). Then, the employer can either provide the employee with an individual policy for the balance of the coverage or give the employee the amount the employer would have spent for the excess coverage as a cash bonus that the employee can use to pay the premiums on an individual policy. You may have questions about this important topic, such as how much your group term life insurance benefit is adding to your income. Contact Holbrook & Manter for help with this and other questions. Are Life Insurance Premiums Tax Deductible?This is an essential question for anyone who has to file their taxes and wants the deductions that may be available. One of the great tax benefits of life insurance is that the death benefit will eventually pass to your beneficiary tax-free. Life insurance is a commitment that many self-employed people make to provide benefits for employees of their company. Most employee benefits like 401(k) plans are tax-deductible, and you might assume that life insurance premiums are as well. Unfortunately, it’s not always that easy to understand! There are many things to consider to determine if life insurance is tax-deductible. We always advise you to consult with an accountant for more detailed tax questions and advice. However, here is a summary of the tax implications of life insurance in different scenarios. Is Business Life Insurance Deductible?The premiums you pay for life insurance policies intended to provide for your family in the event of your death are not tax-deductible, even if you pay the premiums from your business checking account. However, if you have a life insurance policy for protecting your business assets, life insurance premiums are tax-deductible. So, premiums are deductible as a business expense only when the insured is an employee and the company is not the policy’s beneficiary. Therefore, you should be able to deduct life insurance premiums on Schedule C of your 1040. Is life insurance tax deductible for C Corporation?Life insurance owned by a C-corporation is a non-deductible expense according to Internal Revenue Code 264. So, life insurance owned by the shareholder and paid for by the C-corp is considered a taxable fringe benefit, either as wages or dividends. Are life insurance premiums tax-deductible for LLCs?Although the Internal Revenue Service permits LLCs to deduct most insurance premiums as a business expense, life insurance premiums are not eligible. But, if you are the owner of an LLC and are paying life insurance premiums for employees, these premiums may be deductible. Keep in mind that this does not hold if the business owner or LLC will benefit from the coverage.
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Company | Am Best | S &P | Moodsy’s | Fitch | Comdex |
Allianz Life | A+ | AA | 94 | ||
AIG | A | A+ | A2 | A+ | 82 |
Ameritas | A | A+ | 83 | ||
Banner Life | A+ | AA- | AA- | 94 | |
Guardian Life | A++ | AA+ | Aa2 | AA+ | 98 |
John Hancock | A+ | AA- | A1 | AA- | 93 |
Lafayette Life | A+ | AA- | AA | 96 | |
Lincoln National | A+ | AA- | A1 | A+ | 91 |
Mass Mutual | A++ | AA+ | Aa3 | AA+ | 98 |
MetLife | A+ | AA- | Aa3 | AA- | 95 |
Minnesota Life | A+ | AA- | Aa3 | AA | 96 |
Mutual of Omaha | A+ | AA- | A1 | 90 | |
Nationwide Life | A+ | A+ | A1 | 90 | |
New York Life | A++ | AA+ | Aaa | AAA | 100 |
Northwestern | A++ | AA+ | Aaa | AAA | 100 |
Pacific Life | A+ | AA- | A1 | AA- | 93 |
Penn Mutual | A+ | A+ | Aa3 | 93 | |
Principal Life | A+ | A+ | A1 | AA- | 90 |
Protective Life | A+ | AA- | A1 | A+ | 92 |
Prudential | A+ | AA- | Aa3 | AA- | 95 |
Securian | A+ | AA- | Aa3 | AA | 96 |
State Farm | A++ | AA | Aa1 | 98 | |
Thrivent Life | A++ | AA+ | 99 | ||
Transamerica | A | A+ | A1 | 84 |