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