Setting Up Excess Group Life Insurance Deductions

Premiums paid for employees for life insurance policies whose value is in excess of $50,000 are taxable.

The value of group term life insurance (EXLI) must be included in Gross Wages (Box 1), Social Security Wages (Box 3), Medicare Wages (Box 5), and in Box 13 as Code C.

The usual way to handle this is to set up a deduction with an ADDGRS method and process excess life for each pay period. This has the effect of increasing the gross wages, calculating Social Security and Medicare to be withheld, deducting the amount as a deduction, and reducing net pay for the Social Security and Medicare on the gross pay increase (because excess life insurance is not a cash payment to the employee). For state and local wages, the excess life value is added to the respective state and local W-2s' Gross Wages boxes if the State and Local subtasks of the Manage Deductions screen have W-Taxable, but not subject to W/H in the Income Taxability column, or if the Federal tab is set to Taxable, Not Subject to W/H. If you have not been using this method to process excess life each pay period, you must add the amount to a regular paycheck after creating payroll. Group Life Insurance Premiums paid by the company for life insurance policies whose value is in excess of $50,000 are taxable to the employee.

The following step-by-step narrative sets forth the necessary procedures for setting up this capability.