Subject: RLC.OnLiners - Insurance Income
From: <Saved by Windows Internet Explorer 7>
Date: Thu, 22 Jan 2009 16:55:22 -0600

Insurance Income

Here you go , everything you ever wanted to know about insurance income.
This is something I wrote a while back on the topic:

From :  MacAtacSS

Carriers often seek information on the Insurance Income deduction that is
shown on your PS 122 B, earning statement (pay check stub) To understand this
I will need to explain the application of Section 79 of the Internal Revenue
Service code, as it relates to rural carriers' life insurance when the total
amount of coverage under the Federal Employees' Group Life Insurance Program
(FEGLI) exceeds $50,000.

Employees who elect additional insurance, the total of which when added to
the basic coverage, exceeds $50,000, may be subject to Section 79 of the
Internal Revenue Service Code.

Section 79 requires that employers report as income, the cost of the employer
provided term life insurance in excess of $50,000. The cost of such insurance
is converted to "imputed income" using an IRS formula. The formula includes
two (2) tables. Table "A" provides for employees under the age of 45 to have
their basic life insurance coverage increased by an amount equal to 1.1 to
2.0 times their basic life insurance coverage and the "IRS Table" which
contains the IRS formula used to determine imputed income.

IRS regulations also provide that if an employee pays for any part of the
cost of the Group Life Insurance, the entire contribution of the employee
reduces the amount that would otherwise be reported as income because
coverage exceeds $50,000. The IRS does not recognize specific contributory or
non-contributory insurance amounts, but merely considers unit cost based on
the table of rates, which increases in 5 year increments plus the total
amount of life insurance.

The following example illustrates the method of determining the income
reportable as earnings on the Form W-2. Table "A" and the IRS Table are used
in the example along with the FEGLI rates in effect for Option A (Standard
Life Insurance) and Option B (Additional Insurance Coverage) :

Employee's age is 54, insurance code = J (Basic + Option A + Option B, 5 x
Basic Rate). Basic salary (without COLA) = $36,000. Basic insurance = Basic
rate rounded to the next thousand + 2 thousand. The employee's age on
December 31 of the current calendar year determines the age for the purpose
of this formula.

Imputed income for tax purposes is based on the employee's attained age as of
December 31 of the current year. In the above example the attained age will
be 55. The cost per $1,000 is based on the IRS 5 year age bracket table. For
age 55 the cost is $ . 3462 for each $1,000 of coverage.

Tax is not withheld from this imputed income during the course of the year,
but imputed income is included in the employee's gross income at the end of
the year and is printed on Form W-2.

Under Public Law 100-203 enacted in 1988, this imputed income is also subject
to FICA withholding (Social Security and Medicare). However, in this
instance, the holdings from imputed income are made on a pay-period basis.
The amount of imputed income is reflected each pay period on earnings
statements as information. A year-to-date total is not shown.

The employee's age and the amount of insurance he / she has in effect
determines life insurance codes on earnings statements. Standard Form (SF)
2817-B, FEGLI-Federal Employee's Group Life Insurance, dated September 1987,
includes additional information.

So there you have it, the mystery resolved. My thanks to National Executive
Committeeman Bill Gordon, for sharing his expertise, so that I may in turn
share with you.  Patty

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