Steve’s unique guest, Ken Davis, CLU, ChFC, CFP, CPA. Ken Davis is the former president of the Phoenix Chapter of the Society of CPAs and has taught continuing education for the Arizona Society of CPAs on life insurance coverage and annuities. What is IRC code section 79 and how does it operate? Surprisingly, it is the IRC section that provides organizations with an earnings tax deduction for group life insurance coverage up to 000. Most of us believe it is limited to term insurance of 000 or less. And most of us do not comprehend companies get to deduct all the premiums paid to permanent group life insurance policies without limit. The business deducts all premiums but the employee reports portion of the premium, associated to the permanent insurance expense, as earnings from the W-2. The cost of insurance over 000 is also computed and reported on the W-2. The protected harbor guidelines, offered by the IRS, give us tables for these two computations. The net impact is only about 60 to 70% of the total premium is taxable to the employee. The outcome is an equivalent 30 to 40% earnings tax deduction on the general transaction amongst employer and employee. There are non-discrimination guidelines that have to be met. All eligible workers ought to be presented the identical amount of insurance computed from a formula. Nevertheless, all employees can opt out of the permanent insurance coverage and only retain the 000 term insurance. Simply because the phantom earnings the employee has to report if they pick the permanent insurance coverage is fairly substantial …
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