Posts Tagged ‘taxes’

Income Taxes and Employer-Owned Life Insurance

January 27th, 2011 by Iris | 1 Comment | Filed in insurance news, life insurance

It’s almost February, which means everyone should be receiving their w-2s and 1099s if they haven’t already. While we don’t cover tax issues as a general rule, we think it’s worth mentioning the way death benefits from corporate- or business-owned life insurance are handled.

Before 2006, death benefits from the types of life insurance mentioned above were usually tax-free. After August 17th of that year, however, tax law changed to allow income taxation of death benefits on policies issued from that day forward.

The legislation affected businesses of all types and sizes where life insurance policies were purchased by the company on the lives of its employees, and where the employer was the owner and beneficiary of the policy. The law included – but wasn’t limited to – buy-sell arrangements, key-person coverage, and non-qualified deferred compensation plans. It was enacted to address the concerns of members of Congress with regard to large corporations purchasing life insurance coverage on the lives of their “rank and file” employees who were generally unaware of these policies, and which benefits were paid to the corporation.

Basically, this law reversed the rule that corporate or business-owned life insurance death benefits are generally received without being subject to taxation, but there are exceptions to the newer law, if certain criteria are met:

* A Notice and Consent form must be signed and submitted to the insurance carrier for an employer-owned life insurance policy before the policy is issued. Failure to comply will mean that part of the death benefit may be taxed as ordinary income.
* One of the four safe harbors as specified in the law must be in place to keep the death benefit income tax free:
1. The insured is a key person at policy issue.
2. The insured was an employee any time in the 12-month period before death.
3. The death benefit is paid to the Insured’s heirs.
4. Buy-Sell funds. The death benefits remain income tax free if they’re used to buy the Insured’s interest in the employer from someone listed in Safe Harbor 3.

Unfortunately, until the covered employee actually dies, there’s no way to know if Safe Harbors 2-4 are applicable, and until that is determined, the employer won’t know if the death benefit is taxable or not.

Note: This post is meant as a synopsis of the law, and is not meant as tax advice. Please consult with your CPA before entering into any of the arrangements mentioned here.

Tags: , , ,

Landscaper Insurance???

January 25th, 2011 by Iris | Comments Off | Filed in business insurance, insurance news

Okay, we know there is insurance out there for almost everything. I mean, just last Christmas we learned that you can get insurance in case you fall out of a sleigh. But a lawmaker in Rhode Island has recently filed a bill that would require landscapers to register with the state and carry at least $100,000 in public liability and property damage insurance.

The bill was sponsored the earlier this week by Rhode Island state Senator John J. Tassoni, Jr. (D-Smithfield) who says that the point of it is to “level the playing field” between reputable, upstanding landscaping companies and “fly-by-night” companies that don’t pay taxes. He also claims that since the latter sort of landscaper has no overhead they have a big advantage.

Tassoni also said his state is losing a lot of revenue from income and sales taxes.

A spokeswoman for a taxpayer and business advocacy group known as the Rhode Island Statewide Coalition said that she was concerned that smaller landscaping businesses could be hurt by the bill’s requirements.

What I want to know is, what are they defining as a “landscaping business?” Will the teenager who mows someone’s lawn for $20 have to find the cash to buy $100,000 in insurance if this bill passes?

Tags: , , , ,

Health Plan Tax Resolved?

February 1st, 2010 by admin | 1 Comment | Filed in health insurance, insurance news

Consumers worried about the rumor of taxes on high-value health insurance plans, the so-called “Cadillac” plans, can rest easy. Why? Because the White House and union leaders reached an accord two weeks ago which changed the cost threshold and added an eight-year exemption for collectively bargained plans.

According to a report in Modern Healthcare, the deal, which was cemented in mid-January, removed one of the major issues causing friction between the House and Senate.

The final bargain raises cost levels to $8,900 from $8,500 for individuals and to $24,000 from $23,000 for families. Union plans would have an exemption from the tax until 2018. Additionally, dental and vision benefits would be excluded from being part of the total cost beginning in 2005, and the threshold would be adjusted to account for age and gender.

“It’s subject to the final bill,” said Richard Trumka, president of the AFL-CIO, who added that the concessions were tough-won. He also felt that they would move the unions toward an official endorsement of a merged health reform bill.

The move does come at a price, however. The original Senate proposal would have raised almost $150 billion over ten years. With the negotiated changes, the measure will only raise $90 billion, making it necessary for lawmakers to find other sources of revenue to make up for that loss. One idea is an extension of the Medicare tax to include capital gains earnings.

House Democrats have always maintained that they were wary of the Senate’s measure, saying that middle-class workers would be affected, but wealthier ones would not.

Rep. Joe Courtney (D-Conn.) has always been very critical of the tax, and has not yet endorsed the deal, telling reporters only, “It’s too soon to say.”

Tags: , ,