Taxable Life Insurance

The Internal Revenue Service (IRS) has determined that if an employer allows employees access to life insurance in excess of $50,000, the amount in excess of $50,000 has a value to the employee. This value must be added to the individual’s taxable salary when reporting income earned on the annual W 2. This income is based upon the following IRS table:

 
Age Rate per $1,000 of Excess
Life Insurance Per Year
Under 25 $.60
25-29 $.72
30-34 $.96
35-39 $1.08
40-44 $1.20
45-49 $1.80
50-54 $2.76
55-59 $5.16
60-64 $7.92
65-69 $15.24
70 and older $24.

Example: For a 46-year-old employee with a salary of $50,000 electing the three times the annual salary life insurance coverage option, an additional $180 is added to the W-2 as taxable income.

Calculation:
$150,000 minus $50,000 = $100,000
$100,000 divided by $1,000 = $100
$100 times 1.80 = $180.00

In determining the amount of life insurance in excess of $50,000, the employer must total all life insurance programs in which the employee participates. For the University of Iowa, this would include the basic group program and the supplemental life insurance program.

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