What should you do if you think you might be one of the people for whom the tax cost of employer-provided group term life insurance is undesirably high? First, you should determine if this is actually the case. If a specific dollar amount appears in Box 12 of your Form W-2, that dollar amount represents your employer’s cost of providing you with group-term life insurance coverage in excess of $50,000, less any amount you paid (for example, through withholding). You are responsible for any and all Federal, State, and City taxes on the amount in Box 12, and for the FICA tax (Social Security and Medicare) as well. But keep in mind that the amount in Box 12 is already included as part of your total “Wages, tips and other compensation” in Box 1 of the W-2, and it’s the Box 1 amount that’s reported on your tax return.
If you then decide that this cost is too high for the benefit you’re getting in return, you should find out whether your employer has a “carve-out” plan (a plan that carves out selected employees from group term coverage) or, if not, whether it would be willing to create one.
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