Life Insurance Tax Calculator

Automatically calculate the tax on the imputed income of an employer’s Group Term Life Insurance benefit

 

 

In life, there’s a hard way and an easy way to do everything.

The same is true for calculating the tax on imputed income of company-paid life insurance…

See how this imputed income life insurance calculator works in Dynamics GP Payroll.

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In this video we’re going to talk about using our imputed income tax calculator in Dynamics GP to automatically calculate the imputed income taxable amount of a life insurance premium that you’re paying for your employees when their life insurance coverage amount exceeds 50 thousand dollars of coverage. Sometimes this is referred to as group term life and imputed income. I’m going to show you how to let the system do this for you.

First of all, you can maintain the IRS taxable table in Dynamics GP that appears on the screen. When that is complete, you can then set up the life insurance tax calculation in the life insurance tax code setup window. In this situation, we are using the HR premiums in increments and Dynamics GP. In this example, we are letting Dynamics GP Human Resources calculate the premium and the increment amounts based on an age-based table. In this example, the life insurance coverage amount for the employee is two times their annual salary plus $15,000 with a maximum of $265,000 dollars.

We now have two life insurance taxable benefit code set up. Our primary is the life insurance not taxable, our standard life insurance plan. We’ve added an additional taxable benefit called life TX for taxable you can see that our benefit excess minimum amount is $50,000. Which means that any premium over $50,000 of coverage is going to move over to the taxable benefit code and Dynamics GP and that’s going to happen automatically.

When we look at the benefit deduction summary for this employee we can see that their coverage amount is $85,000 and their total premium is $56.10. But, we can also see that $23.10 of that premium, which is a premium on $35,000 the =amount over $50,000, is now taxable. We’ve also got this configured to automatically update if the employees pay changes which is going to impact their coverage amount as well as if they cross into another age based tier an impacts their premium.

Everything will automatically update if either of those scenarios occur.

When I go to process payroll and look at the build report, you will see that we now have both benefits and non-taxable and a taxable amount both adding it to our total premium of $56.10. Everything is already separated so you’ll no longer have to do the update at the end of the year and manually try to figure everything out to get the W-2 correct. This is really going to be important as we get into Affordable Care Act reporting and some of the other reporting requirements they’ll be coming up in the near future.

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Resources

Downloads

Life Insurance Tax Calculator Fact Sheet

Download Life Insurance Tax Calculator Fact Sheet

Life Insurance Tax Calculator User Guide

Download Life Insurance Tax Calculator User Guide