Thursday, December 19, 2013

Are Employer-Provided Life Insurance Premiums a Taxable Fringe Benefit?

Does your religious institute or a sponsored ministry pay premiums for life insurance for its employees, in whole or in part? Did you know that the portion that the employer pays is a fringe benefit to the employee and may be taxable under the Internal Revenue Code? IRS Publication 15-B (pp. 11-14) discusses fringe benefits and requirements of -- and exceptions to -- taxation. (See excerpt from Pub 15b below.)

If you discover that you and your employees should be paying taxes on this fringe benefit, consult with your payroll department and ask them to help assess the situation. The higher an employee's income and age, the higher the tax liability is likely to be. You may also want to notify your employees that this perk is a fringe benefit and that taxes may have to be withheld.

If there is a tax liability, Medicare and Social Security taxes are required to be withheld, while income tax withholding is optional. Pub 15b explains this nuance. Notification of this taxable fringe benefit and its inclusion in income should be sent to employees before the issuance of 2013 W-2s in January of 2014.

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