Internal Revenue Code Section 79
Imputed Income and the ‘Straddle Rule’
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Table of Contents
Introduction.............................................................................................................................................................. 1
Basic Requirements of IRS Section 79.......................................................................................................... 2
Tax Implications for Non-Discriminatory Employer-Paid Life Insurance Coverage
that Exceeds $50,000................................................................................................................................................. 3
Imputing Income on Group-Term Life Insurance Coverage over $50,000 ........................... 3
Table I Rates................................................................................................................................................................... 3
Determining ‘Cost’ of Coverage .................................................................................................................... 4
Imputing Income on Employee-Paid Coverage ...................................................................................... 4
Carried Directly or Indirectly by the Employer; the ‘Straddle Rule’.................................. 5
Avoiding Employer-Carried Policies ........................................................................................................... 6
Impact of Insurers’ Rate Changes ................................................................................................................. 7
Plan Design to Avoid Loss of $50,000 Exemption.................................................................................. 7
Calculating the Tax Consequences of Discriminatory Policies.............................................. 9
Section 79 Exceptions...........................................................................................................................................10
IRC Section 61 and Dependent Group Life..............................................................................................10
Conclusion..................................................................................................................................................................11
How Insurance Point Can Help.....................................................................................................................11
Introduction
This paper reviews Section 79 and the potential
challenges facing employers regarding the structure
of their employee benefit plans. Without a properly
structured plan, employees may be responsible
for paying federal taxes on imputed income, and
employers may be faced with substantial additional
administrative work and costs in calculating imputed
income.
IRS regulations require that imputed income be
reported as it is incurred through the year. Therefore,
it must be incorporated in payroll during the course of
the year. Imputed income may not simply be included
in the year-end W-2. Imputed income is also subject to
regular payroll taxes including FICA.
insurance on employees and voluntary life insurance
on dependents. It is common knowledge that ‘imputed
income’ under Section 79 of the Internal Revenue
Code must be calculated on employer-paid basic life
insurance in excess of $50,000.1 However, employers
may not know that under certain circumstances,
imputed income calculations must also consider
voluntary life insurance on employees. Employers
also may not realize that under certain circumstances
imputed income must be calculated for voluntary
life insurance on dependents. For the reasons
outlined previously, most employers do not wish to
calculate imputed income on voluntary life insurance
on employees or dependents and careful forward
planning is therefore essential.
Many large employers offer a group life insurance
plan to employees that include basic and voluntary life
____________________________________
1 Internal Revenue Code, Title 26, Subtitle A, Chapter 1, Subchapter B, Part II, Section 79
Page 1
Basic Requirements of IRS
Section 79
Section 79 of the Internal Revenue Code (IRC)
governs imputed income on group term life insurance
for employees. Section 61 of the Code governs the
taxation of life insurance on dependents. We will first
address the Section 79 employee life concerns and
then the Section 61 dependent life concerns.
Section 79 details the tax implications for employersponsored group term life insurance. It does not
apply to employer-sponsored whole life insurance or
accidental death and dismemberment coverage. The
following situations involving employer-sponsored
group term life insurance may have tax consequences:
• Employer-paid group term life benefits that
exceed $50,000.
• Discriminatory employer-paid term life plans.
• Employer-sponsored voluntary life coverage.
• Employer-sponsored voluntary life insurance
paid for with pretax dollars under a Section 125
plan.
In order to qualify for the Section 79 tax exclusion,
a life insurance plan must meet all of the following
requirements:
• The plan must provide life insurance benefits
that are excludable from beneficiaries’ income
under IRC Section 101(a). (IRC Section
101(a) provides that life insurance benefits
are excluded if paid because of death; this
encompasses term life products, including those
with viatical benefits).
• The plan must cover a group of employees
or former employees. The plan may be set
up for a limited group of employees (such
as those covered by a collective-bargaining
agreement), but eligibility criteria are subject to
the nondiscrimination rules. Special rules apply
to groups of less than 10 employees. In addition,
it is possible to create a ‘group’ arrangement by
purchasing individual policies for employees.
• The coverage must be provided under ‘a policy
carried directly or indirectly’ by the employer.
Section 79 defines ‘group of employees’ as:
• All employees or a controlled group of
employees.
• Employees considered to be in a covered group
because of one of the following factors:
• Age (subject to ADEA requirements2).
• Employment-related factors, including
union membership, job duties, length of
employment, compensation or participation
in a company retirement, stock bonus or
group insurance plan.
If an employee is eligible for benefits under more than
one group-term life plan, the coverages generally are
aggregated for purposes of the Section 79 exclusion.
This means that an individual employee generally
can exclude only the cost of $50,000 in coverage
regardless of the number of plans providing the
coverage.
• The life insurance must be term coverage.
Plans cannot take advantage of Section 79
to the extent that they provide permanent
benefits - such as a cash surrender value - to
employees. The IRS has said, however, that
individual policies providing permanent benefits
may qualify as group-term life insurance that is
subject to Section 79. If such a policy is subject
to an agreement between the insured employee
and the employer under which the only benefit
that the employee receives under the policy is
life insurance coverage, the coverage provided
to the employee may be subject to Section 79.
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2 Internal Revenue Code, Title 26, Subtitle A, Chapter 1, Subchapter B, Part II, Section 79
Page 2
Tax Implications for NonDiscriminatory EmployerPaid Life Insurance
Coverage that Exceeds
$50,000
The Internal Revenue Service discusses
circumstances under which some portion of Group
Term Life Insurance premiums may be taxable.3
Section 79 permits up to $50,000 of group term life
insurance coverage paid for by an employer (carried
directly or indirectly) to be considered tax-free if the
plan is non-discriminatory (i.e. does not favor key
employees). Every year, employers must calculate
the tax consequences of offering employees more
than $50,000 in employer-paid term life coverage.
Employers must also test the plan to make sure it
does not favor key employees. If it does, those key
employees have to pay additional taxes. Employers
also need to review their voluntary life coverage to
determine whether any income needs to be imputed
on the voluntary plan because of the voluntary rate
table. Finally, organizations allowing employees to pay
for life insurance with pretax dollars will likely need to
impute income for that coverage as well.
There are no tax consequences if the total amount of
such policies does not exceed $50,000. The imputed
cost of coverage in excess of $50,000 must be
included in income, using the IRS Premium Table, and
are subject to social security and Medicare taxes.
Table I Rates
The Table I rates4 are set out in IRS regulations,
and the IRS cannot revise them without issuing new
regulations. The Table I rates are not revised annually.
The IRS last revised the Table I rates in 1999,
generally making the new rates lower than previous
rates. The current Table I rates are set out in the
following table:
Group-Term Life Insurance
Table I Rates
Monthly Costs/$1,000 of Coverage
Age*
Rate
Under 25
$0.05
25-29
.06
30-34
.08
35-39
.09
40-44
.10
45-49
.15
50-54
.23
55-59
.43
60-64
.66
65-69
1.27
70 and over
2.06
*Employee’s age on the last day of the calendar year.
Imputing Income on
Group-Term Life Insurance
Coverage over $50,000
Under IRC Section 79, if a policy ‘carried directly
or indirectly’ by an employer provides coverage to
an employee that exceeds $50,000, the employee
must pay federal income tax on the cost of coverage
amounts in excess of $50,000, to the extent that such
cost exceeds the employee’s after-tax contributions.
‘Cost’ for this purpose generally is not the premium
the insurer charges for the coverage, but, instead,
is determined by ‘Table I’ rates set by the IRS. Most
states follow federal rules for taxing group-term life
insurance coverage; however, each State’s insurance
regulations should be reviewed and confirmed.
____________________________________
3 www.irs.gov/govt/fslg/article/0,,id=110345,00.html
4 www.irs.gov/pub/irs-pdf/p15b.pdf
Page 3
Determining ‘Cost’ of
Coverage
To calculate the monthly cost of insurance amounts
over $50,000, multiply the applicable Table I rate
by the number of $1,000 increments of coverage in
excess of $50,000. If this cost exceeds any amount
paid on an after-tax basis by the employee for the
coverage, the difference is included in an employee’s
gross income. This means that even employees who
contribute the full premium charged by the insurer may
have to pay tax on any amount by which the Table I
cost of coverage over $50,000 exceeds the premium
charged by the insurer. This result may be avoided in
some cases based on the relationship among multiple
policies and the premiums under those policies.
Imputing Income on
Employee-Paid Coverage
As noted previously, if an employee’s after-tax
payments for life insurance are less than the full
Table I cost of the employee’s employer-carried
coverage exceeding $50,000, the employee generally
will have tax liability on the difference. Under a
nondiscriminatory group-term life insurance plan that
provides over $50,000 of coverage on an employee,
the includable cost equals the Table I rate for
coverage exceeding $50,000, reduced by any after-tax
employee contributions made for the entire coverage
amount. Under this formula, an employee may have
tax liability on coverage for which the employee pays
the full premium charged by the insurer because the
applicable Table I rate may be higher than the insurer’s
rate.
Example
ABC Company provides Ms. X with group-term life
insurance equal to two-times her base salary of
$45,000. ABC pays the premium for the first $45,000
of coverage and Ms. X pays on an after-tax basis
$.20 per $1,000 of coverage per month (the full
premium charged by the insurer) for her coverage
over $45,000. Ms. X is 51 years old.
Total Coverage Amount ($45,000
x 2)
$
90,000
Less $50,000 Exclusion
$
50,000
Equals Coverage over $50,000
$
40,000
Monthly Cost of Coverage over
$50,000 Table 1 Rate (40,000 ÷
$1,000 x $0.23)
$
9.20
Less Employee’s Monthly
Contribution (40,000 ÷ $1,000 x
$0.20)
$
(9.00)
Equals Employee’s Monthly
Taxable Amount
$
0.20
Page 4
Carried Directly or
Indirectly by the Employer;
the ‘Straddle Rule’
Section 79’s rules apply only to coverage that is
provided under a policy that is ‘carried directly or
indirectly’ by an employer. Those rules include the
requirement to impute income at Table I rates on
coverage amounts exceeding $50,000, as well
as the exclusion of the value of coverage up to
$50,000. Consequently, employers generally want to
provide coverage up to $50,000 under an employercarried policy (to make the first $50,000 of coverage
nontaxable). At the same time, they generally want to
provide employee-paid coverage exceeding $50,000
under a policy that is not employer-carried (to avoid
imputing income based on Table I rates).
A policy is considered ‘employer-carried’ (directly or
indirectly) if:
1. The employer pays any cost of the life
insurance, or
2. Employees pay for coverage under the policy
on a pre-tax basis, or
3. The employer arranges for the premium
payments and the premiums paid by at least
one employee subsidizes those paid by at
least one other employee (the ‘straddle’ rule).
This means that any policy providing any employerpaid coverage (or coverage paid on a pre-tax basis)
will always be employer-carried. The employer cannot
avoid imputing income on employee-paid coverage
under such a policy and must arrange a separate
policy to provide employee-paid coverage to avoid
imputing. In addition, the employer must ensure that
the policy providing the employee-paid coverage has
a rate structure that does not ‘straddle’ Table I. Such
straddling occurs when the life insurance rates of
one age group of employees are less than the Table
I rates, while the insurance rates of another group of
employees are equal to or greater than the Table I
rates. The rates charged under that policy must be at
or below corresponding Table I rates, or all such rates
must be at or above corresponding Table I rates.
In these cases, imputed income creates a taxable
event. This generally occurs when there is a composite
rate for all participants in a voluntary or supplemental
life plan. As a result, some employees pay more than
their actual coverage cost (a rate that would be based
upon their age) and others pay less. The determination
of whether the premium charges straddle the costs is
based on the IRS Premium Table rates, not the actual
cost. Because the employer is affecting the premium
cost through its subsidizing and/or redistributing role,
there is a benefit to employees. This benefit is taxable
even if the employees are paying the full cost they are
charged.
Page 5
Avoiding Employer-Carried
Policies
If an employer provides employer-paid basic coverage
up to $50,000 under a policy that is separate, as
previously described, from a policy providing excess
coverage for which employees pay the entire cost on
an after-tax basis, the employer may avoid imputing
income altogether. The employer’s paying for the basic
coverage means that all coverage will be considered
employer-carried if it is provided under the same policy
as the basic coverage. With respect to coverage under
that policy up to $50,000, employees will have the
Section 79 exclusion, and the employer will not be
required to impute income.
If a separate policy provides only coverage for which
employees pay all required premiums with after-tax
income then, provided that premiums under that
policy do not straddle Table 1, that policy will not be
employer-carried and may not be subject to Section 79
imputing requirements. A policy whose rates straddle
Table I will be deemed employer-carried. An employer
avoids these straddle situations by making sure that
either:
• None of the rates charged under the excess
policy are above the rates set by Table I (stated
differently, each of the rates are at or below the
corresponding Table I rate), or
• None of the rates charged under the excess
policy are below the rates set by Table I (stated
differently, each of the rates are at or above the
corresponding Table I rate).
Example
ABC Company maintains two group-term life insurance
policies under which it provides group-term life insurance
to its employees. ABC pays the premium for coverage
equal to one-times base salary, and this basic coverage
is provided under a policy issued by Insurer Y (the Basic
Policy). Coverage of an additional one-times base salary
amount is voluntary. Employees electing this additional
coverage pay the full premium charged by the insurer for it
out of after-tax pay. The extra coverage is provided under
a policy also issued by Insurer Y (the Excess Policy).
The Basic Policy and the Excess Policy are not crosssubsidized in any way, and the premiums charged under
each are properly allocated for purposes of Section 79.
ABC elects to treat the two policies as separate from one
another. Ms. X is 51 years old, has annual base salary of
$45,000 and elects both coverages.
Premiums under the Excess Policy are as shown in
the following chart in contrast to Table I rates.
Group-Term Life Insurance
Table I Rates
Monthly Costs/$1,000 of Coverage
Age*
Excess
Policy Rates
Rate
Under 25
$0.06
$0.05
25-29
.07
.06
30-34
.08
.08
35-39
.10
.09
40-44
.14
.10
45-49
.18
.15
50-54
.23
.23
55-59
.64
.43
60-64
.83
.66
65-69
1.37
1.27
70 and over
3.75
2.06
*Employee’s age on the last day of the calendar year.
Result under the Basic Policy: The Basic Policy will be
deemed carried by ABC for Section 79 purposes because
ABC pays for coverage provided under the Basic Policy.
Accordingly, assuming that coverage under the Basic
Policy meets the other Section 79 requirements, coverage
provided to an employee under the Basic Policy up to
$50,000 of coverage is excluded from the employee’s
income. Ms. X has only $45,000 coverage under the Basic
Policy and the value of that coverage is fully excluded from
her income. (The Table I cost of coverage under the Basic
Policy exceeding $50,000 would be included in the taxable
income of employees receiving that coverage.)
Result under the Excess Policy: ABC elected to treat
the Basic Policy and the Excess Policy as separate
policies, and ABC does not contribute to, or allow
employee pre-tax contributions to, coverage under the
Excess Policy. In addition, the rates charged to employees
for coverage under the Excess Policy are at or above
(in other words, they do not ‘straddle’) the Table I rates.
Therefore, the Excess Policy is not ‘carried directly or
indirectly’ by ABC for purposes of Section 79, and ABC
does not have to determine how much, if any, imputed
income Ms. X might have because of her coverage under
the Excess Policy.
Page 6
Impact of Insurers’ Rate
Changes
Even a very small rate change can cause an
employee-pay-all policy to become employer-carried.
An employer that wants to provide an employeepay-all policy without that policy becoming employercarried should review the rates under that policy
against Table I each time the policy’s rates change and
each time Table I changes.
Example
Same facts as in the previous example except that
the rate under the Excess Policy in 2011 for those
under age 25 is $0.02 lower than the rate charged in
2011.
Result under the Basic Policy: Same as noted in
the previous example.
Result under the Excess Policy: One of the
Excess Policy’s 2011 rates is now lower than the
Table I rate, while the other rates remain above
the Table I rates, causing a straddle relative to the
Table I rates. Therefore, ABC is deemed to ‘carry’
the Excess Policy for purposes of Section 79 during
2011. ABC must impute income to Ms. X during 2011
as described in the first example above.
Calculating Group Term Life Insurance Imputed
Income
1. Determine the amount of Basic Life Coverage
provided by the employer
2. Add any supplemental, optional or voluntary
life coverage which is paid for with pre-tax
contribution
3. Subtract $50,000
4. Divide the balance by 1,000
5. Multiply the result in #4 above by the IRS Table
I rate, based on age at the end of the calendar
year
6. Multiply the total by the number of months
covered during the year
Imputed income can be offset by contributions made
by employees for all or a portion of group term life
insurance coverage.
Plan Design to Avoid Loss
of $50,000 Exemption
Non-discriminatory Plan
The IRS only permits the first $50,000 in term life
insurance coverage to be exempt from imputed
income in cases where the coverage is provided
on a non-discriminatory basis. A plan is considered
to be discriminatory if it provides benefits that favor
‘highly compensated employees’ (HCEs). As presently
defined under IRC Section 414(q)(1)(B), this would
include all employees earning over $115,000 in
2012. A discriminatory plan would provide coverage
that either excludes certain employee classes while
covering HCEs or provides benefits for HCEs that
are greater than those provided to non-HCEs. The
regulations do allow for benefits to differ in proportion
to salary (i.e. – a plan providing coverage in multiples
of salary to all employees) but otherwise require
consistency in order to meet the non-discrimination
requirements.
For plans that fail the non-discrimination test, imputed
income must also be applied to the first $50,000 in
group term coverage for HCEs only (not for nonHCEs).
Tax Implications for Discriminatory Employer-Paid
Life Insurance Plans
Under some circumstances, key employees may not
be allowed the tax exemption for $50,000 of employerpaid life insurance. For the tax exemption to apply
to key employees, an employer’s term life plan must
meet the Section 79 non-discrimination requirements.
Section 79 does not allow plans to favor key
employees in either eligibility or benefits. If the plan
design favors key employees, the value of the entire
amount of life insurance coverage the employer
provides becomes taxable for those employees only.
Separate non-discrimination tests consider eligibility
and benefits. The first step in non-discrimination
testing should be to identify key employees covered
by the life insurance plan. One can then conduct the
eligibility and benefits test to determine whether the
plan favors those employees.
Key Employees and Benefits Eligibility Test
The benefits eligibility test is designed to determine
whether the plan favors key employees when it
chooses who may participate in the employer-paid
group life plan.
Page 7
A key employee is any employee who at any time
during the plan year is:
• A more than 5% owner.
• An employee owning more than a 1% interest
in the company and whose compensation or
income from the employer exceeds $150,000 a
year.
• An officer of the employer whose compensation
exceeds $165,000 for 2012.5
A group life plan is considered discriminatory if it
cannot pass at least one of these tests:
1. The plan benefits at least 70% of all employees.
2. At least 85% of all participants are not
considered key employees.
3. The plan covers a nondiscriminatory class
of employees as determined by the Internal
Revenue Service.
4. If premiums are deducted pretax via a cafeteria
plan, the plan must satisfy the Section 125 nondiscrimination requirements.
An employer may disregard the following employees
when trying to determine whether the plan meets the
non-discrimination requirements:
• Workers employed for less than three years.
• Part-time or seasonal employees.
• Employees covered by a good faith collective
bargaining agreement between the employer
and union.
• Non-resident aliens who receive no earned
income from the employer.
Non-discrimination standards apply to current,
disabled, former or retired employees. Employers must
test life benefits for these classes separately from
active employees. Many organizations offer employerpaid life insurance to all full-time employees.
Key Employees and Benefit Amount Test
Group life plans cannot offer key employees higher
benefits. A plan will automatically pass this test if:
1. The plan provides the same amount of
employer-paid life insurance to all employees;
for example, a flat $20,000 life benefit to all
employees; or
2. The plan determines the benefit amount
on a percentage of income and uses the
same percentage of earnings for all covered
employees. For example, all eligible employees
are covered for an amount equal to their annual
earnings. However, even if a plan does not
offer the same coverage amount or percentage
for all employees, it still may not automatically
favor key employees. If employers offer different
benefits for different classes of employees,
in order to pass the ‘benefit amount’ test, the
organization must determine whether each class
can pass any of the eligibility tests described in
the previous section. This is confusing but the
following example should help.
Example
ABC Company has 500 employees and offers two classes
of employer-paid group term life coverage. It offers all
400 of its hourly employees a life benefit equal to their
annual earnings. At the same time, it offers 100 salaried
employees a life benefit equal to double their annual
earnings. No key employees are hourly, and 10 key
employees are salaried. Only salaried employees must
meet benefits eligibility standards because that benefit
class covers all key employees. Of the 100 salaried
participants, only 10 are considered key employees.
Since fewer than 15% of the salaried employees are key
employees, this plan design would not be considered
discriminatory with the current headcounts. The benefit
design passes the second eligibility test described in the
previous section: at least 85% of all participants are not
considered key employees.
If the company adds a third class of employer-paid group
term life coverage with benefits equal to triple annual
earnings but offers it only to key employees, then this
class would not meet the eligibility test. The plan would be
considered discriminatory, and key employees would face
tax consequences.
____________________________________
5 http://www.irs.gov/pub/irs-pdf/p15b.pdf
Page 8
The Internal Revenue Code lists two exceptions to the
non-discrimination rules:
1. A church group life insurance plan for church
employees. This exception does not apply to
church supported institutions of higher learning
(other than a school for religious training) or a
church supported non-profit medical or hospital
facility.
2. Any additional life insurance that employees
pay for out-of pocket is not included in the nondiscrimination determination. If this additional
life insurance coverage is available only for key
employees, however, then the plan is considered
discriminatory. Employers need to review their
life coverage annually to make sure the plan
doesn’t favor key employees.
Calculating the Tax
Consequences of
Discriminatory Policies
If an employer-provided group term life plan favors
key employees, calculating their imputed income is
different in two ways:
1. Key employees do not get the $50,000 benefit
exemption; the employer must calculate imputed
income based on the full amount of their life
insurance coverage.
2. Employers must use the greater of Table I rates
or the actual rate the insurer charges when you
calculate imputed income.
Unfortunately, the IRS does not clearly define the
term ‘actual rate’. In general, an employer should
not use the composite rate charged for a thousand
dollars of life coverage. To determine a composite
rate, the insurance carrier melds age-banded rates
representing employee demographics. Employers will
need to ask their life insurance insurer for the actual
cost (or age banded rates) for key employees. It could
be argued that the actual cost can also take into
account any effective discounts the carrier has applied
to the composite rate. For example, if the insurer
took a 15% discount off the composite rate during the
quoting process, one could take that discount off the
key employee age rate before determining the actual
cost for imputed income purposes.
Additional imputed income needs to be assessed on
key employees only when the life plan is considered
discriminatory.
Page 9
Section 79 Exceptions
Section 79 requirements apply only to group term life
plans. Group term life plans do not include:
1. Accidental Death and Disability coverage, travel
accident insurance, or accident and health
coverage.
2. Any permanent life insurance coverage that
includes additional paid-up options or cash
surrender values.
3. Minimal fringe benefits, up to $2,000 of
employer-paid dependent life insurance. These
benefits are considered minimal (de minimis)
and, therefore, tax-free.
As can be seen, there are very few exceptions to the
Section 79 rules.
IRC Section 61 and
Dependent Group Life
IRC Section 61 discusses taxation of fringe benefits.6
The Section 79 rules do not apply directly to
dependent life insurance (insurance that is on the lives
of an employee’s spouse and/or dependent children).
In general, an employer can provide up to $2,000 of
dependent life insurance coverage without creating
any additional federal income tax liability for the
employee. This exclusion is separate and distinct from
the Section 79 provisions and requirements. However,
dependent life insurance may create additional federal
income tax liability in certain circumstances, pursuant
to Section 61.
paid by the employee on an after-tax basis. Thus,
the amount includible in income is the cost (as
determined under Table I) less the amount paid for the
insurance by the employee. There is an exception for
cases in which the dependent coverage constitutes
a “de minimus fringe benefit”.7 If the face amount of
employer provided group-term life insurance payable
on the death of a spouse or dependent of an employee
does not exceed $2,000, such insurance shall be
deemed to be a de minimis fringe benefit under
that Code section.8 However, dependent term life
coverage amounts exceeding $2,000 may have tax
consequences. Common dependent life coverage may
include $5,000 per child and either $15,000, $30,000,
or $45,000 for spousal coverage, and employees all
pay the same flat rate for such coverage, regardless of
the number of children or age of the spouse covered.
Those employees who pay more than the uniform
rates in Table I will have no income. However, for
those employees who pay less than the uniform rates,
imputed income may ensue.
Dependent life insurance coverage cannot be offered
through a cafeteria plan. Many employers offer a
dependent life insurance benefit as an after-tax benefit
that employees can elect on the same form they use to
elect cafeteria plan benefits. In these cases, however,
the dependent life coverage should not be included in
the formal cafeteria plan document and the materials
distributed to employees should make clear that the
dependent life insurance coverage is not part of the
cafeteria plan.
Under Section 61, an employee must include in
gross income the amount by which the fair market
value of the fringe benefit exceeds the sum of (i) the
amount, if any, paid for the benefit by or on behalf of
the recipient, and (ii) the amount, if any, specifically
excluded from gross income by some other section of
the Code.
Special rules apply when the fringe benefit provided
to the employee is group-term life insurance. In that
case, applicable Treasury regulations state that the
‘cost’ of the insurance – determined under Table I
of Section 79 – is includible in the gross income of
the employee, except to the extent that such cost is
____________________________________
6 Federal Tax Regulations 1.61-2 under Section 61 of the Internal Revenue Code
7 Internal Revenue Code Section 132(e)
8 Notice 89-110, 1989-2 C.B. 447
Page 10
Conclusion
IRC Section 79 can pose real challenges for
employers offering life insurance and voluntary
benefits. Unless properly structured, employers may
be required to calculate imputed income on employerpaid basic life insurance in excess of $50,000 and
voluntary life insurance on employees or dependents.
Employers must also be careful to design benefit
plans that are non-discriminatory and do not favor key
employees. Because of the Straddle Rule, employers
must be careful to design benefit plans that make
sure no employee pays more than the Table I rate for
coverage while another employee pays less than the
Table I rate. The cost to the employer of calculating
imputed income and making sure the benefits package
remains in compliance with IRS requirements can be
substantial. As a result, careful planning and design of
an employee benefits package is vital. Insurance Point
will be happy to assist your organization in planning for
your employee benefits to ensure that you and your
employees avoid the pitfalls of the straddle rule.
How Insurance Point Can
Help
Securing competitive Life and Disability benefits for
your employees is more complex and challenging
than ever. Insurance Point is an expert in Life and
Disability products for organizations in the healthcare
industry. We only work with hospitals and healthcare
organizations, saving them 10% to 20% over current
in-force rates. Working with our carrier partner, we
aggregate risk components through collaboration
with many other member hospitals and healthcare
organizations to ensure greater purchasing strength
and create a larger risk pool to help keep rates low
and stable. Doing business with Insurance Point
ensures that your organization benefits from our
expertise while enjoying low and stable premium rates
for your employee Life and Disability coverage.
We invite you to learn more about how Insurance Point
can help your organization cope with the complexities
of employee Life and Disability Insurance benefits. To
learn more or to schedule a meeting about benefits for
your organization, please contact Jim Hall or visit the
Insurance Point website at InsurancePoint.com.
James L. Hall II
Jim Hall is the Executive
Director of the Centre for
Entrepreneurship and Innovation
at the University of Oxford’s Saïd
Business School. Additionally
Jim serves as the Executive
Chairman of Insurance Point.
Jim has enjoyed a long and
successful career as an
entrepreneur, principal investor,
strategic advisor and business philanthropist.
Throughout his career, he has been very active on
various boards.
Jim founded and led several organizations including
Insurance Point, which provides insurance benefits to
healthcare employees at hundreds of hospitals across
the United States; Ebenefits.com, a successful webbased human resource benefits administration system;
and Versa Ventures, a management consulting and
investment firm. He was the former CEO of Children’s
Miracle Network, an organization dedicated to saving
and improving the lives of children by raising threequarters of a billion dollars for children’s hospitals.
Jim received a Bachelor of Science degree from
Westminster College, his MBA from the University
of Oxford, and is currently undertaking a DPhil at
the University of Oxford. He is the Chairman of the
London-Westminster chapter of the Young Presidents
Organization (YPO).
Contact Insurance Point
Jim Hall
Executive Chairman
Mobile: 801-953-3333
Email: Jim.Hall@InsurancePoint.com
Michael D. Greco
Principal and Chief Sales Officer
Office: 630-797-2210
Email: Michael.Greco@InsurancePoint.com
Nick Westbye
Vice President Client Support & Services
Office: 801-478-1700
Email: Nick.Westbye@InsurancePoint.com
Page 11
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InsurancePoint.com
Phone: 801-478-1700 | Fax: 801-478-1710
181 East 5600 South, Suite 240
Salt Lake City, UT 84107
July 2012, 500