Group life insurance a common workplace benefit
by admin on Sep.05, 2010, under Life and Health insurance
Do you know what fringe benefits your employer provides you? Do you know the tax treatment each benefit gets and the taxation that can result from these benefits?
The most common group benefit in our economy is group life insurance. Generally, the first $50,000 of such coverage that the employer pays for is tax-free. Anything in excess of that amount that is paid for by the employer is taxed to the employee at very favorable tax rates. Of course, any premium paid by the employee for that excess coverage reduces the tax otherwise owed.
(Please note the word “generally” throughout this column. Since there are always exceptions to every rule, blanket statements about those rules are never 100 percent correct. But, if they almost always apply, I will use that qualifying term to cover those cases where the blanket statement does not apply.)
Medical insurance is the next-most-prevalent employer provided benefit. Traditionally, the employee-paid portion of this coverage has been paid with after-tax dollars. But recently “Section 125 Cafeteria” plans have allowed employees to deduct this portion of the cost.
A major innovation came in 2003 with the advent of health savings accounts (HSAs). This allows people to save for current and post-retirement medical expenses on a before tax-basis. To be eligible for such accounts, the participants must be covered by a high-deductible medical-insurance plan.
Disability-income insurance partially replaces monthly paycheck if an employee is disabled by sickness or injury on or off the job. The premium paid by the employer for this coverage is not taxable as income to the employee. But any disability-income benefits received by the disabled employee which are attributable to the employer’s premium payments are generally taxable income to the disabled employee.
For qualified retirement plans, such as pensions, simplified employee pension plans (SEP), IRAs, 401(k)s, and 403(b) annuities, employer contributions are generally not currently taxable to the employee. These plan contributions and any return that they earn are generally not taxed until actually withdrawn by the employee. Even certain employee contributions can be tax-deferred.
Here are a few suggestions regarding your fringe benefits:
Notify your human resources department when you have a change in your family profile, such as a birth, death, marriage, divorce, etc.
Be sure to keep your life-insurance and retirement-plan beneficiaries current. Mistakes and omissions in this area can be devastating for those overlooked and disruptive to families.
Understand your retirement plan provisions, such as vesting schedules, loan provisions, and options upon retirement so you know what to expect and can plan accordingly.
J. Brendan Ryan is an East Walnut Hills insurance agent. E-mail jbryanclu@aol.com .
Source:
