Are the short/long term and life insurance premiums paid by employer taxable to employee? Also, what benefits are included in a group term life insurance? What is a cafeteria plan?
Are the disability and life insurance premiums paid by employer taxable to employee?
Answers
Premiums for Group Term Life Insurance in excess $50,000 of coverage are taxable to the employee. IRS has tables to assist with the amount included in the employee's W-2. Also, IRS Publication 15-B is a good resource to review to understand the
1
Thank you for your post. The tax
The tax accountant said that the premiums paid for life/disability insurance are not a deduction on tax return. What this means?
I am still confused.
If the employer pays for disability insurance and does not charge them to the employee and there is a disability claim, the benefits paid are taxable to the employee. If the employer pays the disability premiums but charges the employee for them, the benefits received are not taxable to the employee. This is a very important point and one that is often overlooked. Disability claims are rare but they do happen and it is much better for the employee if the payments are not subject to tax.
I believe if you have the employee pay with after tax money any claims are not taxable, but if you have the employee pay with pretax money the claims are taxable.
I would recommend for short-term and long-term liability to use a TPA if possible. Our disability is sponsored through the same company we get our dental from and they pay the disability benefits directly to the employee deducting the required taxes and they issue the W2 at the end of the year to the employee. We are responsible to file the employer portion of the taxes but it's fairly simple and straight forward then.
Filed Under:
Human Capital