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Taxation of Death Benefits

The Internal Revenue Code [Section 7702(j)] dictates that certain self-funded church death benefits be treated as life insurance contracts. The Benefit Plan’s salary continuation and lump-sum death benefits qualify for that treatment.

Under the code, an employee is not taxed on the cost to an employer of group-term life insurance premiums if the total coverage provided does not exceed $50,000. If the coverage exceeds $50,000, the cost (as valued by the Internal Revenue Service) in excess of $50,000 is deemed “imputed income” and must be included in the employee’s gross income reported on the W-2.

If an employer provides additional group-term life coverage, that coverage also must be included in the total coverage amount. For example, if an employer pays for supplemental death coverage, that benefit would have to be included.

Taxation of Death Benefit Dues Calculator

Use the taxation of death benefit dues calculator to calculate the imputed income to be reported yearly on a member’s W-2, if any. You need to know the employee’s salary and age, as well as the median salary for his or her employment classification.

When an insured employee dies, paid death benefits are excluded from the recipient’s gross income for federal and most state income tax purposes.