AICPA Individuals

The IRS has issued final regulations revising the uniform premium rates in Table I, "Uniform Premiums for $1,000 of Group-Term Life Insurance Protection," used to calculate the cost of group-term life insurance provided to employees under Sec. 79. The new table produces lower taxable income for employees of all ages and became effective July 1, 1999.

The cost of group-term life insurance is determined on the basis of five-year age brackets as prescribed by Regs. Sec. 1.79-3. Aside from the updated rates used to calculate the taxable amounts, the rules on the taxation of group-term life insurance coverage remain unchanged. Sec. 79 generally permits an employee to exclude from gross income the cost of the first $50,000 of employer-provided group-term life insurance coverage. However, a portion of the first $50,000 of coverage may be taxable to key employees, if the employer's plan discriminates in favor of them as to eligibility to participate or the type and amount of benefits available under the plan. The cost of group-term life insurance coverage in excess of $50,000 is included in the employee's gross income to the extent it exceeds the amount, if any, paid by the employee for the coverage. Table I is used for this purpose.

Table I was initially published in 1966 and was subsequently revised in 1983 to reflect more recent mortality rates reported by the Society of Actuaries. The Service explained that Table I should be revised, because "there has been a significant improvement in mortality since the 1975–79 period." The new table is based on 1985–1989 mortality experience reported by the Society of Actuaries. In constructing revised Table I, the IRS used a 50/50 blend of male and female mortality rates, and adjusted the resulting unisex rates to reflect a 10% load factor.

The uniform premium rates under revised Table I are lower in all age groups than the rates under the old table; the revised table adds a new age bracket for employees under age 25. (Previously, there was one rate for employees under age 30.) Exhibit 1 compares the new and old rates.

Five-Year age bracket	New rates	Old rates	% change
Exhibit 1: New Table 1 Amounts (cost per $1,000 for protection for one month
Under 25	$0.05	$0.08	–37.5
25–29	.06	.08	–25.0
30–34	.08	.09	–11.1
35–39	.09	.11	–18.2
40–44	.10	.17	–41.2
45–49	.15	.29	–48.3
50–54	.23	.48	–52.1
55–59	.43	.75	–42.7
60–64	.66	1.17	–43.6
65–69	1.27	2.10	–39.5
70 and above	2.06	3.76	–45.2

The July 1, 1999 effective date for the final regulations could affect employer payrolls. Imputed income from employer-provided group-term life insurance generally is subject to FICA withholding. Employers will need to either modify their payroll-based withholding systems to reflect the new rates or correct for overwithholding occurring after July 1, 1999. However, practitioners should note that Regs. Sec. 1.79-3 affects only the taxation of group-term life insurance coverage. Other types of insurance coverage (such as split-dollar policies), which result in imputed income to covered employees using the PS-58 rates, are not affected.