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According to the Internal Revenue Service, the cost of group-term life insurance an employer provides to an employee for coverage over $50,000 is to be included in the wages reported for the employee. This   Per the IRS guidelines this amount is subject to withholding for Social Security and Medicare, but not income tax. The cost is generally determined by using the uniform premium rates provided by the IRS. These rates set the cost of each $1000 of group-term life insurance for each month, according to the employee's age.  Click here for more information from the IRS regarding Group-Term Life Insurance and related costs. 

The following steps will ensure that the proper amounts will be taxed and placed on the W2 forms.

 1. Calculate the taxable amount for each employee involved.

Example:

A 35 year old principal receives $250,000.00 of board paid group term life insurance for an entire calendar year. 
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The amount of excess coverage over $50,000.00 is used to determine the taxable coverage. In this example the amount of taxable coverage would be $200,000.00.

Using this same figure, it must be determined how many thousands of dollars are involved.

This figure will be used later to determine the annual cost. IRS Publication 15-B gives the cost per $1000.00 of protection for a 1 month period. The cost for this 35 year old is .09 per month. This must be multiplied by the number of months the coverage was in effect.

The non-cash earnings amount is calculated by taking the number of thousands and multiplying it by the factor calculated in the previous step.

Processing a Life Insurance

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Premium Payment Through a Payroll     

Note- The software provides the ability to withhold city tax on non-cash earnings. This can be activated by checking the "Tax Non Cash Earn" field on the city tax record in the CORE/PAYROLL ITEM CONFIGURATION program.   

1. Using the PAYROLL/PAYROLL PAYMENTS - CURRENT or PAYROLL/PAYMENTS-FUTURE program, the amount should be entered using a pay type of Life Insurance Premium. This pay                  type represents one kind of non-cash earnings for the employee. 

2. 2.  Go to Payroll>Payroll Payments - Current or Payroll Payments - Future.

3.  Click Create.

4.  Enter the following:

• Employee - Select the appropriate employee from the dropdown

• Compensation - Select the appropriate compensation from the dropdown

• Description - Life Insurance Premium

• Pay Type - Life Insurance Premium

• Effective Date - Leave blank if wanting to be processed the next payroll processed.  Otherwise enter a date inclusive of the pay period beginning and ending dates of the payroll you want the payment to be included in

• Units - 1

• Rate - Enter the calculated life insurance premium amount 

• Applies For Retirement - Uncheck the checkbox

• Retire Hours - Leave blank

• Supplemental - Leave unchecked

• Supplemental Tax Option - None

Payroll Payment - Future

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Payroll Payments - Current

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5.  Click Save.

This pay type will be treated differently for taxation purposes . Using this non-cash earnings amount, the and according to the Federal rules.  The tax amounts for Medicare and Social Security will be calculated during the                    Initializing the initialization of the pay and PAYROLL PAYMENTS - CURRENT program.3. payroll and the Payroll Payments - Current program.  No Federal, OhioState, or OSDI tax amounts will be calculated. All of these will be treated according to the federal rules.   The software provides the ability to withhold city tax on this life insurance non-cash                earningscash earnings payment. This can be activated by checking the "Tax Non Cash Earn" field on the city tax record in the CORE/PAYROLL ITEM CONFIGURATION program.4. Complete the payrollon the Core>Payroll Item Configuration screen.

The Life Insurance premium non-cash earnings (NC1) amount will not be included in the gross pay amount, nor in the gross totals found on Pay Report or REPORTS/PAY AMOUNT SUMMARY REPORT OPTIONS. However, the Total Gross amount on the Pay Report but is added in the 'All Pay' total on the Pay Amount Summary Report.  However, the life insurance premium non-cash earnings amount is being will be included in the adjusted gross figure Adjusted Gross figure on the employee's payment because the amount is considered part of the taxable gross (even though no tax is being withheld on it. Both the Pay Report or REPORTS/PAY AMOUNT SUMMARY REPORT OPTIONS will ) Both the Pay Report and Pay Amount Summary Report provide a total figure of all non-cash earnings in the total sectionTotals Section - NC1 total under Pay Type Totals on the Pay Report and Other Pay and All Pay on the Pay Amount Summary Report. This extra total will help in balancing purposeswith balancing.

6.  Complete the payroll.

Processing a Life Insurance Premium Payment

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That Was Not

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Processed Through Payroll

If the Life Insurance Premium Pay Type was NOT USED  not used prior to the last pay of for the calendar yearemployee, the Life Insurance Premium (NC1 in classicClassic) payment amount must be entered under Core-Adjustments- Click on Create: Find the Employee, choose the 001 Federal Payroll Item, Type- Life Insurance, Transaction Date and Amount in order for the Life Insurance amount to show correctly on the W2 form and to insure that the Quarter balances. 

When the Save button is clicked this will update the total and taxable gross fields for any Payroll Item that taxes Life Insurance Premiums (Federal, State, OSDI, City, (if applicable) and Medicare. This is then reflected on the W2 Report.

The employee will owe city tax for the Life Insurance Amount not paid through the system. This will be reflected when the employee files their taxes with the city. 

Core-Adjustments- Click on Create: Find the Employee, choose the 001 Federal Payroll Item, Type- Life Insurance, Transaction Date and Amount

When the Save button is clicked this will update the total and taxable gross fields for any Payroll Item that taxes Life Insurance Premiums (Federal, State, OSDI, City, (if applicable) and Medicare. This is then reflected on the W2 Report.

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Medicare withholding must be paid. If the Medicare withholding was paid by the employee and employer or it was entirely paid by the employer, Adjustments must be made to the 692-Medicare-Employee Amount Withheld and Board Amount of Payroll Item.

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If Medicare is fully board paid (Pickup) then the total Adjustment should be made to the Board Pickup Amount of Payroll Item.

Image Removedmanually.  This ensures the life insurance premium amount will show correctly on the W2 form.

7.  Go to Core>Adjustments.

8.  Click Create.

9.  Enter the Employee, Payroll Item 001, Type of Life Insurance, a Transaction Date, Amount equaling the life insurance calculate in Step 1, and a Description for future reference.  

10.  Click Save. 

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11.  If Medicare Paid by Employee and Board, the Medicare withholding must be paid.  Create adjustments for the Medicare payroll item(s). (Board will need to pay for both Employee and Employer portion of Medicare.  If the district chooses, the employee can reimburse the district.)

• If the employee is responsible for paying their portion of Medicare, the following adjustments will need to be created:

  • Go to Core>Adjustments.  

  • Click Create.

  • Enter the Employee, Payroll Item 692, Type of Amount Withheld, a Transaction Date, Amount equaling the calculated Medicare amount, and a Description for future reference.

  • Click Save.

  • Click Create.

  • Enter the Employee, Payroll Item 692, Type of Board's Amount of payroll item, a Transaction Date, Amount equaling the calculated Medicare amount, and a Description for future reference.

  • Click Save.

Example:

Life Insurance cost is $100.00.  Medicare Amount would calculated as $100.00 x .0145 = $1.45.  Adjustments would need to be posted as follows:

• $1.45 Amount Withheld for 692

• $1.45 Board's Amount of payroll item for 692

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• If the Medicare is fully board paid (referred to as Medicare Pickup), adjustments will need to be created.  (Board will need to pay for both Employee and Employer portion of Medicare.) 

  • Go to Core>Adjustments.  

  • Click Create.

  • Enter the Employee, Payroll Item 692, Type of Board's Pickup Amount of Payroll Item, a Transaction Date, Enter the Amount of the board pickup, and a Description for future reference.

  • Click Save.

  • Click Create.

  • Enter the Employee, Payroll Item 692, Type of Applicable Gross, a Transaction Date, Enter the Amount of the Life Insurance, and a Description for future reference.

  • Click Create.

  • Click Save.

  • Enter the Employee, Payroll Item 692, Type of Board's Amount of payroll item, a Transaction Date, Amount equaling the calculated Medicare amount, and a Description for future reference.

  • Click Save.

Example:

Life Insurance cost is $100.00.

$100.00 Life Insurance cost/ 98.55% = $101.47 Applicable Gross

$101.47 x .029 (.0145 x 2) = $2.94 Medicare Pickup Amounts

$1.47 for each the Employee (being paid by the board as pickup) and Employer amount. 

$101.47 - $100.00 = $1.47 Applicable Gross Adjustment

$1.47 Is the amount of the Board Pickup Amount of the Payroll Item.  This will update both Medicare Pickup for $1.47 and Medicare for $1.47 on the Employee's W2.

$1.47 Is the amount of Board's Amount of payroll item.  This will update the 941 Quarter report 'QTD Employer's Medicare Contribution.' 

$1.47 Is the amount of Applicable Gross. This will update the employee's W2 Taxable Gross for Medicare.

Adjustment records that need to be created:

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