What are life insurance premiums in the context of payroll?

In the context of payroll, life insurance premiums refer to the payments an employee makes toward a life insurance policy, often through automatic deductions from their paycheck. Employers typically manage these deductions through payroll or benefits administration software to ensure accuracy.

Are life insurance premiums deducted pre-tax or post-tax?

Most life insurance premiums are deducted post-tax, meaning they don’t reduce an employee’s taxable income. However, there are exceptions. For example, employer-paid group term life insurance coverage up to $50,000 is typically not taxable. If the coverage exceeds that amount, the value of the extra coverage is considered imputed income and is subject to taxes.

How are life insurance premiums reported on tax forms?

Employee-paid premiums for basic group life insurance generally aren’t reported separately unless they’re part of a pre-tax plan or complex benefits package. If the employer pays for coverage over $50,000, the value of that excess coverage is treated as imputed income and will be reported on the employee’s W-2.