4.1. ERMUSR 05-12-2009 - Laserfiche WebLink

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Employee. For this exclusion, treat the following individu- als as employees. 1. A current common-law employee. 2. A full-time life insurance agent who is a current statu- tory employee. 3. An individual who was formerly your employee under (1) or (2), above. 4. A leased employee who has provided services to you on a substantially full-time basis for at least a year if the services are performed under your primary direc- tion and control. Exception for S corporation shareholders. Do not treat a 2% shareholder of an S corporation as an employee of the corporation for this purpose. A 2% shareholder is someone who directly or indirectly owns (at any time dur- ing the year) more than 2% of the corporation's stock or stock with more than 2% of the voting power. Treat a 2% shareholder as you would a partner in a partnership for fringe benefit purposes, but do not treat the benefit as a reduction in distributions to the 2% shareholder. The 10-employee rule. Generally, life insurance is not group-term life insurance unless you provide it to at least 10 full-time employees at some time during the year. For this rule, count employees who choose not to re- ceive the insurance unless, to receive it, they must contrib- ute to the cost of benefits other than the group-term life insurance. For example, count an employee who could receive insurance by paying part of the cost, even if that employee chooses not to receive it. However, do not count an employee who must pay part or all of the cost of permanent benefits to get insurance, unless that employee chooses to receive it. Exceptions. Even if you do not meet the 10-employee rule, two exceptions allow you to treat insurance as group-term life insurance. Under the first exception, you do not have to meet the 10-employee rule if all the following conditions are met. 1. If evidence that the employee is insurable is re- quired, it is limited to a medical questionnaire (com- pleted by the employee) that does not require a physical. 2. You provide the insurance to all your full-time em- ployees or, if the insurer requires the evidence men- tioned in (1), to all full-time employees who provide evidence the insurer accepts. 3. You figure the coverage based on either a uniform percentage of pay or the insurer's coverage brackets that meet certain requirements. See Regulations section 1.79-1 for details. Under the second exception, you do not have to meet the 10-employee rule if all the following conditions are met. • You provide the insurance under a common plan covering your empleyees and the employees of at least one other emplcyer who is not related to you. • The insurance is restricted to, but mandatory for, all your employees who belong to, or are represented by, an organization (such as a union) that carries on substantial activities besides obtaining insurance. • Evidence of whether an employee is insurable does not affect an employee's eligibility for insurance or the amount of insurance that employee gets. To apply either exception, do not consider employees who were denied insurance for any of the following rea- sons. • They were 65 or older. • They customarily work 20 hours or less a week or 5 months or less in a calendar year. • They have not been employed for the waiting period given in the policy. (This waiting period cannot be more than 6 months.) Exclusion from wages. You can generally exclude the cost of up to $50,000 of group-term life insurance from the wages of an insured employee. You can exclude the same amount from the employee's wages when figuring social security and Medicare taxes. In addition, you do not have to withhold federal income tax or pay FUTA tax on any group-term life insurance you provide to an employee. Coverage over the limit. You must include in your employee's wages subject to social security and Medicare taxes the cost of group-term life insurance that is more than the cost of $50,000 of coverage, reduced by the amount the employee paid toward the insurance. Report it as wages in boxes 1, 3, and 5 of the employee's Form W-2. Also, show it in box 12 with code "C." Figure the monthly cost of the insurance to include in the employee's wages by multiplying the number of thousands of dollars of insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in the following table. Use the employee's age on the last day of the tax year. You must prorate the cost from the table if less than a full month of coverage is involved. Table 2-2. Cost Per $1,000 of Protection For 1 Month A~ Cast Under25 .................... ............... $.05 25 through 29 ................. ............... .06 30 through 34 ................. ............... .08 35 through 39 ................. ............... .09 40 through 44 ................. ............... .10 45 through 49 ................. ............... .15 50 through 54 ................. ............... .23 55 through 59 ................. ............... .43 60 through 64 ................. ............... .66 65 through 69 ................. ............... 1.27 70 and older .................. ............... 2.06 You figure the total cost to include in the employee's wages by multiplying the monthly cost by the number cf full months' coverage at that cost. Example. Tom's employer provides him with group-term life insurance coverage of 5200,000. Tom is 45 years old, is not a key employee, and pays 5100 per year toward the cost of the insurance. Tom's employer must include 5170 in his wages. The $200,000 of insurance coverage is reduced by $50,000. The total cost of $150,000 of coverage is $270 ($.15 x 150 x 12), and is reduced by the $100 Tom pays for the insurance. The Publication 15-B (2008) Page 11