Academic journal article Journal of Accountancy

Reporting Regs Issued for Employer-Owned Life Insurance

Academic journal article Journal of Accountancy

Reporting Regs Issued for Employer-Owned Life Insurance

Article excerpt

The IRS has issued final regulations on information reporting required for employer-owned life insurance policies.

The Pension Protection Act of 2006 added IRC [section][section] 101(j) and 60391 concerning employer-owned life insurance contracts. An employer-owned life insurance contract is one owned by a person engaged in a trade or business employing the insured person where the employer is the direct or indirect beneficiary of the contract.

Under IRC [section] 101(j), the amount of death benefits that may be excluded from gross income is limited to the sum of the premiums and other amounts paid by the employer-policyholder for the contract. That limitation, however, doesn't apply with respect to insureds who were employees at any time within 12 months of their deaths, highly compensated employees or highly compensated individuals. It also doesn't apply to death benefits paid to a family member or estate of the insured, amounts paid to a designated beneficiary of the insurance contract other than the applicable policyholder, or to a trust for the benefit of a family member or designated beneficiary. Furthermore, the limitation doesn't apply to death benefit amounts used to purchase an equity interest in the applicable policyholder from a family member, trust or estate. Note, however, that "highly compensated individuals" for purposes of this subsection include the highest-paid 35% of employees rather than the top 25% of employees in the otherwise applicable definition found in IRC [section] 105(h)(5), which sets forth nondiscrimination requirements for self-insured medical reimbursement plans. …

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