J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

3.4 Group-Term Life Insurance Premiums

You are not taxed on your employer’s payments of premiums on a policy of up to $50,000 on your life. You are taxed only on the cost of premiums for coverage of over $50,000 as determined by the IRS rates shown in the table below. On Form W-2 your employer should include the taxable amount as wages in Box 1 and separately label the amount in Box 12 with Code C. You may not avoid tax by assigning the policy to another person.

If two or more employers provide you with group-term insurance coverage, you get only one $50,000 exclusion. You must figure the taxable cost for coverage over $50,000 by using the IRS rates below.

Regardless of the amount of the policy, you are not taxed if, for your entire tax year, the beneficiary of the policy is a tax-exempt charitable organization or your employer.

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Filing Instruction

Uncollected Social Security and Medicare of Former Employees

If you receive coverage as a former employee, you must pay with Form 1040 on the line for “total tax” your share of Social Security and Medicare taxes on group-term life insurance over $50,000. The taxable amounts are shown in Box 12 of Form W-2, with Codes M and N.

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Your payments reduce taxable amount.

If you pay part of the cost of the insurance, your payment reduces dollar for dollar the amount includible as pay on Form W-2.