Definition of Imputed Income
Internal Revenue Code section 79 provides an exclusion for the first $50,000 of group-term life insurance coverage provided under a policy carried directly or indirectly by an employer. There are no tax consequences if the total amount of such policies does not exceed $50,000.
Teachers & State Employees Retirement Death Benefit
All active employees who contribute to the Teachers & State Employee Retirement System (TSERS)and who have one year of contributing service (or within 180 days of separation if contributions have not been withdrawn) have a death benefit, at no cost to them, that is based on their annual salary and will be for no less than $25,000 and no greater than $50,000. This death benefit counts towards the tax free $50,000 limit noted above.
NC Flex Life Insurance
All SPA and EPA employees who work at least 20 hours per week for 9 or more months per year are eligible to purchase pre-tax Group Term Life Insurance through NC Flex. If the total amount of insurance purchased exceeds $50,000 when added to the TSERS death benefit the premium paid on the portion over $50,000 is considered Imputed Income.
Example: An employee’s annual salary is $35,000, which means they have a $35,000 death benefit through the retirement system. They purchase $10,000 in Group Term Life Insurance through NC Flex. Therefore they have $45,000 worth of group-term life insurance. Since this is below the $50,000 limit there is no tax consequences on the premiums paid by the employee. There is no imputed income.
However, if the employee were to purchase $25,000 in Group Term Life Insurance through NC Flex they would then have a total of $60,000 in group-term life insurance. The full premium paid by the employee on the $25,000 is treated as a pre-tax deduction. Then the portion of the premium paid on the $10,000 that is in excess of the $50,000 limit is added into the taxable gross salary (for calculation of tax only) as imputed income.