IRS Group Term Life Insurance: Imputed Income and W-2 Reporting

If your employer provides more than $50,000 of group term life insurance, the coverage above that threshold creates imputed income on your W-2. The taxable amount isn’t what your employer actually pays the insurer. It’s calculated from an IRS age-based rate table, added to your wages, and subject to Social Security and Medicare tax, though usually not to federal income tax withholding.¹

The first $50,000 of coverage is excluded from your gross income, Social Security wages, and Medicare wages under Section 79 of the Internal Revenue Code. Every dollar above $50,000 triggers the calculation below.

How to Calculate Your Imputed Income

The IRS requires everyone to use the same standardized rate table, called Table I (reproduced as Table 2-2 in Publication 15-B), regardless of what the employer actually pays. The math has four steps:²

Subtract $50,000 from your total employer-provided coverage.
Divide the excess by $1,000 to get the number of units.
Look up the monthly cost per $1,000 based on your age on the last day of the tax year.
Multiply units by rate by number of months covered.

Coverage amounts are rounded to the nearest $100 before dividing into $1,000 units. If coverage starts or ends mid-month, your employer prorates the Table I cost for that month rather than treating it as full.

2026 Table I Rates

Monthly cost per $1,000 of coverage, based on your age on December 31:²

Under 25: $0.05
25–29: $0.06
30–34: $0.08
35–39: $0.09
40–44: $0.10
45–49: $0.15
50–54: $0.23
55–59: $0.43
60–64: $0.66
65–69: $1.27
70 and older: $2.06

The rate climbs steeply with age. A 45-year-old with $100,000 of excess coverage has $18 per month in imputed income. A 67-year-old with the same excess coverage has $127 per month, roughly seven times as much. Over a year, that’s $180 versus $1,524 in additional taxable wages.

A Worked Example

A 60-year-old employee has $80,000 of employer-paid group term life insurance. The excess over $50,000 is $30,000, or 30 units. At age 60 the Table I rate is $0.66. Monthly imputed income is 30 × $0.66 = $19.80. Over 12 months, that’s $237.60 added to taxable wages.³

Your After-Tax Contributions Reduce the Taxable Amount

If you pay part of the premium with after-tax dollars, your contribution offsets the Table I cost dollar for dollar. Take the same 60-year-old, now contributing $0.20 per $1,000 of coverage per month toward the full $80,000 policy. The monthly contribution is $16.00. The Table I cost on the excess coverage is $19.80. Imputed income drops to $3.80 per month, or $45.60 for the year.³

If your contribution equals or exceeds the Table I cost, imputed income is zero. A 42-year-old paying $0.20 per $1,000 monthly for $80,000 of coverage contributes $16.00, which exceeds the $3.00 Table I cost on the excess (30 units × $0.10). Nothing is added to wages.

Paying the premium through a Section 125 cafeteria plan with pre-tax dollars does not change this calculation. The $50,000 threshold and the Table I rate work the same way, and the imputed income on excess coverage remains subject to Social Security and Medicare tax.⁴

How It Shows Up on Your W-2

Your employer adds the imputed amount to Box 1 (wages), Box 3 (Social Security wages), and Box 5 (Medicare wages). The same amount also appears in Box 12 with Code C, which specifically identifies the taxable cost of group term life insurance over $50,000.⁵

The tax treatment splits in an important way. Social Security tax (6.2%) and Medicare tax (1.45%) apply, and your employer withholds your share from your paycheck. Social Security tax stops once your total wages reach the 2026 wage base of $184,500; Medicare tax has no cap.⁶ Federal income tax, however, is generally not withheld from this imputed amount. You settle the income tax when you file your return, or you adjust your W-4 to cover it during the year.

If You’re a Former Employee or Retiree

When coverage continues after you leave the company, there’s no paycheck to withhold FICA from. Your former employer reports the uncollected Social Security tax in Box 12 with Code M and the uncollected Medicare tax with Code N. These amounts do not appear in Box 4 or Box 6, because they were never actually withheld, and you pay them with your Form 1040.⁵

The numbers can surprise retirees. At 68 with $200,000 of continuing coverage, the Table I cost on the $150,000 excess is $190.50 per month, or $2,286 per year. You’ll owe both halves of FICA on that amount at filing time, on top of any income tax.

Coverage That Doesn’t Produce Imputed Income

Several situations fall outside the normal Section 79 calculation. Knowing which bucket your coverage sits in matters, because the result can be zero imputed income, a different calculation entirely, or no exclusion at all.

Accidental Death and Dismemberment

A policy that pays benefits only for accidental death, including travel accident coverage or a standalone AD&D policy, is not group term life insurance for Section 79 purposes. It’s treated as an accident and health benefit and is generally exempt from income tax, Social Security, and Medicare tax. If you have both a group term life policy and a separate AD&D policy, only the group term life portion counts toward the $50,000 threshold.⁷

Charity or Employer as Beneficiary

When a qualifying charity is the sole beneficiary of all or part of your policy for the entire tax year, the cost of that portion is excluded from your income entirely, and the $50,000 limit doesn’t apply to it. The charity must be the only beneficiary of that portion, with no contingent beneficiary other than another qualifying charity. You can split coverage, naming a charity for part and a family member for the rest, with the exclusion applying only to the charitable portion. You cannot also take a charitable deduction for the designation.⁸ The same exclusion applies when the employer itself is the policy beneficiary.¹

Spouse and Dependent Coverage

Group term life insurance on a spouse or dependent is not covered by Section 79 at all. The $50,000 exclusion doesn’t apply, and neither does the Table I calculation. Instead, coverage of $2,000 or less on a spouse or dependent is generally treated as a de minimis fringe benefit and is tax-free. Above that, the employer’s actual cost of the coverage becomes taxable income to you. The IRS notes that de minimis status depends on all facts and circumstances, so amounts somewhat above $2,000 may still qualify in some cases.⁹

Disabled Former Employees

If you left your employer because of a disability and the employer continues your coverage, the full cost is excluded from your income regardless of the coverage amount, as long as you meet the IRS definition of disabled.¹

2% S Corporation Shareholders

If you own more than 2% of an S corporation that provides your group term life coverage, the $50,000 exclusion does not apply. The cost of all coverage, not just the excess, is included in your W-2 wages and subject to Social Security and Medicare tax. The corporation doesn’t withhold federal income tax or pay federal unemployment tax on it.¹⁰

Discriminatory Plans and Key Employees

Section 79 has nondiscrimination rules that prevent concentrating benefits on top executives. If a plan fails these tests, only “key employees” lose the exclusion. A key employee is defined under Section 416(i) and includes officers earning more than $235,000 in 2026, 5% owners, and 1% owners earning more than $150,000.¹¹ For a key employee in a discriminatory plan, taxable income includes the greater of the Table I cost or the actual cost of the insurance, with no $50,000 floor.¹ Everyone else in the plan keeps the normal $50,000 exclusion and the normal Table I calculation.

1
Office of the Law Revision Counsel. 26 USC 79 – Group-Term Life Insurance Purchased for Employees
2
Internal Revenue Service. Publication 15-B – Employers Tax Guide to Fringe Benefits
3
BCNYS. IRC Table I Values for Group Term Life Insurance
4
Internal Revenue Service. FAQs for Government Entities Regarding Cafeteria Plans
5
Internal Revenue Service. 2026 General Instructions for Forms W-2 and W-3
6
Social Security Administration. Contribution and Benefit Base
7
Internal Revenue Service. Employers Tax Guide to Fringe Benefits
8
eCFR. 26 CFR 1.79-2 – Exceptions to the Rule of Inclusion
9
Internal Revenue Service. Group-Term Life Insurance
10
Internal Revenue Service. Employers Tax Guide to Fringe Benefits – Publication 15-B
11
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs