[nib]

hello friends

Simulation 1040 form , I am confused about calculation of group term life insurance amount taken in 3 dollars in wages on line 7 , 1040 form .Information given is also very limited as below. please help me with this calculation .

info provided :

For the current tax year, Alex’s wages were $53,000 and Phyllis’s wages were $47,000. The couple’s employer provides group-term life insurance in the amount of the employee’s wages.

Line 7: 100,003

This line is the sum of the couple’s wages, which is $100,000 ($53,000 + $47,000) and the imputed income on the group term life insurance excess coverage for Alex ($2.88, rounded to $3.00).

explanation :

The imputed amount is a two-step calculation. First, the number of $1,000 units of insurance coverage in excess of $50,000 is determined. In this case, there are 3 units of excess coverage, calculated as follows:

• $53,000 – $50,000 = $3,000, or 3 units of coverage

Second, the imputed cost for the excess units is determined. The imputed cost equals the monthly premium amount (see the Uniform Premiums table in Regulation Section 1.79-3(d)) corresponding to Alex’s age (30) times the number of months of insurance coverage (12 months). More specifically, the imputed cost equals:

• 3 units of coverage, multiplied by $0.96 per unit ($0.08 per unit per month x 12 months), which equals $2.88.

(The reference for this line is section 4512.15 in the Regulation Reference volume.)

[Missy]

I think you've left out quite a bit of the information provided but basically here's the deal. An employee only has to claim as taxable income the uniform premiums for any insurance provided over $50k in coverage. Since Alex gets coverage of $53k, he is going to be taxed on what his employer pays for the $3k in coverage over the $50k. The premiums are calcuated in units of $1000 so $3k in additional coverage is 3 units of insurance premiums. You are told to look at the uniform premium table which is the premium per $1000 of coverage based on age. Apparently you were told Alex is 30 years old so the table will tell you that it is .96 per $1000 of coverage. He gets three times one unit (3x$1000=$3000) and has to add to his income $3 (3 x .96 rounded).

His wife's coverage is $47k so she need not pay tax on imputed income as her coverage is less than $50k/

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[nib]

@ mla11692

Thanks for quick response .Its very helpful.

JUst one more thing given below is information line from sim which clearly states that 53,000 is wages of alex . then why this full wage amount is considered as grup term life insurance .
My understanding was 53,000 wages which include some amount of grup term life insurance .

pls help me with the missing point to correct my misunderstanding .

simulation information :

. For the current tax year, Alex’s wages were $53,000 and Phyllis’s wages were $47,000. The couple’s employer provides group-term life insurance in the amount of the employee’s wages.

[Missy]

The wages do not include life insurance. Wages are what Alex gets paid by his employer. They offer GTL equal to his wages (if he dies his beneficiary will get $53k from the insurance company, not from his employer) and the employer pays the premium to the insurance company.

In reality the W-2 will have a code C in box 12 and the dollar amount 2.88. But basically this question is asking you to calculate the amount that would populate that box and code on a W-2.

Licensed Massachusetts Non Reporting CPA since 2012
Finance/Admin/HR Manager

[Author]

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