GUIDE FOR CALCULATING ADDITIONAL TAX FOR LIFE INSURANCE BENEFIT OVER $50,000

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GUIDE FOR CALCULATING ADDITIONAL TAX FOR LIFE INSURANCE BE
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(Review this guide before completing the $50,000 Life Insurance Limit Form on the reverse.) Rensselaer is required to withhold FICA (Federal Insurance Contributions Act) tax on the cost of the life insurance coverage over $50,000 when an employee’s benefit exceeds $50,000. This cost is not based on the actual cost of the premium charged by the insurance company, but on costs established by the Internal Revenue Service (IRS). Before making a decision, you may want to calculate the additional tax that would be imposed on your life insurance over $50,000. The two examples below are based on the following table:
IRS CALCULATION OF MONTHLY COST PER $1,000 OF LIFE INSURANCE ON THE EXCESS OVER $50,000 Under age 25 Ages 25 through 29 Ages 30 through 34 Ages 35 through 39 Ages 40 through 44 Ages 45 through 49 Ages 50 through 54 Ages 55 through 59 Ages 60 through 64 Ages 65 through 69 Over age 69 $.05 $.06 $.08 $.09 $.10 $.15 $.23 $.43 $.66 $1.27 $2.06

The FICA tax for 2008 is 7.65% (6.20% for social security and 1.45% for Medicare). The taxable wage base for the social security portion is $102,000. This means that no social security tax is imposed on wages over $102,000. There is no limit for the Medicare portion Example 1: An employee, age 37, earns $17,700 per year. Rensselaer provides this employee with a life insurance benefit equal to 2.25 times the July 1 rate of pay ($17,700 x 2.25 = $39,825), rounded up to the next $1,000. In this instance the benefit is $40,000. As the benefit is under $50,000, the benefit is not considered excessive by the Internal Revenue Service and is not taxed. Example 2: An employee, age 55, earns $47,500. Rensselaer provides this employee with a life insurance benefit equal to 2.25 times the July 1 rate of pay ($47,500 x 2.25 = $106,875). In this instance the benefit is $107,000. The amount considered in excess is $57,000 ($107,000 – $50,000 = $57,000). According to the IRS table, the cost of each one thousand dollars of excess is $.43. The taxable amount is then $24.51 per month ($.43 x 57 {the number of excess thousands} = $24.51). Rensselaer is required to withhold FICA tax of 7.65% on that $24.51, or $1.88, each month ($24.51 x 7.65% = $1.88). The annual FICA tax is therefore $22.56 ($1.88 x 12 months).
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GUIDE FOR CALCULATING ADDITIONAL TAX FOR LIFE INSURANCE BE
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