Federal Reporting Requirements for Churches 2012

Other Important Requirements for Churches

Reporting group term life insurance

You must include in the income of employees any imputed cost of employer-provided group term life insurance coverage (including death benefits under Benefits for Life ) that exceeds $50,000. You must also include the imputed cost of all employer-provided group term life insurance on the life of a spouse or dependent if the coverage provided exceeds $2,000.The imputed cost can be determined according to the following table.

Cost per $1,000 of protection for 1-month period

AGE BRACKETS	COST	AGE BRACKETS	COST
Under 25	5 cents	25 to 29	6 cents
30 to 34	8 cents	35 to 39	9 cents
40 to 44	10 cents	45 to 49	15 cents
50 to 54	23 cents	55 to 59	43 cents
60 to 64	66 cents	65 to 69	$1.27
70 and above	$2.06

The death benefit under Benefits for Life is shown in the following table:

AGE	BENEFIT
Thru age 40	5 times compensation
41 thru age 50	4 times compensation
51 thru age 60	3 times compensation
61 thru age 65	2 times compensation
66 and to retirement	1 times compensation

The payment during the first year of membership is 1/3 of the above schedule and 2/3 during the second year of membership. Compensation used in determining the death benefit is the figure reported to MMBB for calculating the Benefits for Life premiums, with a maximum compensation of $250,000. Compensation includes cash salary, rental value of parsonage and utilities and/or housing allowance. The inclusion of a Social Security/Medicare tax offset is optional for determining premiums. If there was a compensation change during the tax year, the compensation should be prorated in the group term life insurance tax liability calculation. Also, the age of the member at the end of the year should be used in determining the death benefit and the age bracket in the IRS table shown above.

EXAMPLE. Rev B is 52 years old and her church reports compensation of $50,000 to MMBB. Benefits for Life provides $150,000 of group term life insurance protection for her.The imputed cost of the excess coverage on Rev. B is $276.You must include in Rev. B’s income $276 computed as follows:

50,000 × 3 $150,000.00
Total insurance coverage $150,000.00
“Tax-free” amount -50,000.00
Insurance subject to tax $100,000.00

Taxable income calculation:
Cost per $1,000 for each month of protection
$100,000 divided by $1,000 = 100.00
$100 x .23 = $23.00 × 12 = 276.00
Total reportable income $276.00

Rev. B’s church should include the $276 with wages in Box 1 of FormW-2.This amount should also be reported in Box 12 and labeled “C” (see page 10). Any includable amount is subject to income tax as well as Social Security / Medicare Tax withholding for nonordained church employees.

The imputed cost of group term life insurance does not apply for member of Benefits for Life if:

• The members have designated their employer or a charitable organization as their sole primary beneficiary for the group term life insurance; or
• The first $50,000 is designated to a person, estate or noncharitable institution and the balance is designated to charitable organization

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