Many of our entrepreneurial clients think that if their company owns life insurance on an employee, it’s non-taxable. Be careful: it’s a little more complicated.
Corporate-owned life insurance requires specific reporting in order for the proceeds to be non-taxable .
Any corporation that owns life insurance on an employee must
- obtain a written consent from the employee and
- annually report the ownership of this life insurance on Form 8925.
An “employee” for this purpose includes officers, directors and highly compensated employees. The consent and reporting requirements apply to life insurance contracts issued after August 17, 2006. These rules will likely affect buy/sell agreements between corporations and their shareholder/employees. The proceeds from life insurance will be taxable if these procedures are not followed.
If you have questions about whether your life insurance is in compliance, please contact me or any Kaufman, Rossin professional.
This information is not intended or written to be used for the purpose of avoiding tax penalties and it cannot be used for that purpose. Further, this information is a general description of current tax law and is not presented as a tax opinion on any general or specific tax issue or situation. This information may not be used to promote or market any transactions stated herein. Readers are advised to seek advice from their own tax advisors if they have questions.
