If you are an employer with employer-owned life insurance contracts, you are required by the IRS to report information about it on Form 8925. You must include this form with your income tax return. This reporting requirement only applies to contracts issued after August 17, 2006.
If you have an applicable contract, you must provide your tax professional with the following:
- the number of employees you had at the end of the year
- the number of those employees who were covered by an employer-owned life insurance contract issued after August 17, 2006
- the total amount of employer-owned life insurance in force at the end of the tax year.
The form must also indicate whether you have valid consent on file from each employee. If you don’t, you must report how many employees for whom you do not have valid consent.
In order to be considered an employer-owned life insurance contract, the following requirements must be met:
- Owned by a policyholder – the person who owns the employer-owned life insurance contract and who is:
- engaged in a trade or business that employs the person insured under the employer-owned life insurance contract
- the direct or indirect beneficiary of the employer-owned life insurance contract.
- Covers the life of the policyholder’s employee on the date of issuance.
Employees include officers, directors and highly compensated employees.
Valid consent means giving the employee written notification that the policyholder intends to insure their life and what the maximum face amount for which the employee could be insured. The maximum face amount must be expressed as a dollar amount or a multiple of salary.
It must also include notification that the policyholder will be the beneficiary of any proceeds payable upon the death of the employee. The employee must give the policyholder written consent to be insured under the contract and that the coverage may continue even after the employee terminates employment. The contract must be issued within one year of this consent to remain valid.
If you have any questions about employer-owned life insurance contracts or think this might apply to you, please contact your tax professional.
This article was originally published in Illuminations: Facts & Figures from people with a brighter way, a Rea & Associates enewsletter, 2/29/12.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.