What Is Imputed Income for Group-Term Life Insurance?

Imputed income is the taxable value of employer-funded life insurance above $50,000. The premium cost for the first $50,000 of coverage is exempt from taxation, and employers must report the imputed income on the employee's W-2.

When life insurance becomes taxable

When employers include life insurance as part of an overall compensation plan, the Internal Revenue Service (IRS) treats it as taxable income. That taxation applies only when the employer-funded life insurance coverage exceeds $50,000. The premium cost for the first $50,000 of coverage is exempt.

Employers are required to report the imputed income for basic life insurance plans on their employees' W-2 tax forms.

How to calculate imputed income for a basic life plan

The IRS provides a specific formula that you must use. Follow these steps:

1. Take the employee's coverage amount and subtract $50,000. This gives you the excess amount.
2. Divide the excess amount by 1,000.
3. Multiply that result by the monthly cost per $1,000 for the current tax year, taken from the IRS age and cost table below. Use the employee's age as of the end of the tax year to find the right rate. The result is the monthly imputed income.
4. Multiply the monthly amount by 12 months to get the annual cost.

Worked example

Tom's employer provides him with $200,000 of life plan coverage. Tom is 45 years old as of the end of the current tax year.

Frequently asked questions

What is imputed income on group-term life insurance?

When employers include life insurance as part of an overall compensation plan, the IRS treats it as taxable income. That taxable value is the imputed income, and it applies only to the portion of employer-funded coverage that exceeds $50,000.

Is the first $50,000 of employer-paid life insurance taxable?

No. The premium cost for the first $50,000 of employer-funded coverage is exempt from taxation. Only coverage above $50,000 creates imputed income.

How do I calculate imputed income for basic life insurance?

Subtract $50,000 from the employee's coverage amount to get the excess amount, divide that excess by 1,000, and multiply the result by the monthly cost for the employee's age from the IRS age and cost table in Publication 15-B. Multiply the monthly figure by 12 to get the annual cost.

Which age do I use for the IRS cost table?

Use the employee's age as of the end of the tax year to determine the monthly cost per $1,000 of protection.

Where does imputed income for basic life get reported?

Employers are required to report the imputed income for basic life insurance plans on their employees' W-2 tax forms.