SETTING UP EXCESS GROUP LIFE INSURANCE DEDUCTIONS

Premiums paid for employees for life insurance policies whose value is in excess of $50,000 are taxable. The value of group term life insurance (EXLI) must be included in Gross Wages (Box 1), Social Security Wages (Box 3), Medicare Wages (Box 5), and in Box 13 as Code C.

The usual way to handle this is to set up a deduction with an ADDGRS method and process excess life for each pay period. This has the effect of increasing the gross wages, calculating Social Security and Medicare to be withheld, deducting the amount as a deduction, and reducing net pay for the Social Security and Medicare on the gross pay increase (because excess life insurance is not a cash payment to the employee). For state and local wages, the excess life value is added to the respective state and local W-2s' Gross Wages boxes if the State and Local subtasks of the Manage Deductions screen have W-Taxable, but not subject to W/H in the Income Taxability column, or if the Federal tab is set to Taxable, Not Subject to W/H. If you have not been using this method to process excess life each pay period, you must add the amount to a regular paycheck after creating payroll. Group Life Insurance Premiums paid by the company for life insurance policies whose value is in excess of $50,000 are taxable to the employee.

The following step-by-step narrative sets forth the necessary procedures for setting up this capability.

Step 1: Add a new Pay Type for Excess Life (Manage Pay Types screen)

The Manage Pay Types screen is typically established in the following manner:

1. Pay Type Code — Set up a three-character code (Example — EXL).

2. Description — Add a description (Example — Excess Life).

3. Factor — Set to 1.

4. Additional Calculations Based on an Amount — Select the Add Pay Type Amount to Timesheet Line option. Amount must remain 0.00.

5. Options and Employee Eligibility — Select the following check boxes: Cost Only, Exempt, Non-Exempt, and Salaried.

6. Overtime Premium Recasting — Leave this group box blank.

7. Weighted Average Rate — Select the Don't Include option.

8. Save the screen.

Step 2: Set up a Deduction Code for Excess Life

Set up deductions on the Manage Deductions screen in the Deductions menu. Deductions are typically established in the following manner:

1. Deduction Code — Set up a deduction code with a maximum of six characters (for example, EXLIFE).

2. Short Desc — Enter a short description. Your short description can be the same as your Deduction Code.

3. Description — Enter a description of the Deduction Code (Example - Excess Life Deduction).

4. Deduction Type — Click to select EXLI (Excess Life Insurance).

5. Deduction — Select this check box.

6. Contribution — Do not select this check box.

7. Computation Method — Set to ADDGRS.

8. Priority — Set between 1 and 99. 1 represents the highest priority and 99 represents the lowest.

9. Pay Type — Enter the Pay Type Code you set up in Step 1.

10. Workers' Comp - Select a workers' compensation code that is otherwise not used by your company, because the Workers' Comp code applies to all excess life amounts. However, excess life amounts are normally not subject to workers' compensation. Check with your Human Resources department regarding your specific situation.

11. Amount — 0

12. Ceiling Method — N/A

13. Ceiling Amount — N/A

14. Start date and Through date - Dates do not need to be completed.

15. Account/Vendor/Reference Numbers subtask — Withholding Posting group box — Withholding Account — You must identify the General Ledger account that has been set up on the Manage Accounts screen.

16. On the Account/Vendor/Reference Numbers subtask, all fields in the Contributions group box are disabled because the Contributions check box is cleared on the main screen.

17. Federal tab — Because excess life is fully taxable, select the Fully Taxable option in the Income Tax group box. If your state and local taxes follow the federal rules, you do not need to complete the State and Local subtasks.

18. State — State taxability follows the federal rules unless otherwise specified. Please check your specific state taxability rules for excess life.

19. Local — Local taxability follows the federal rules unless otherwise specified. Please check your specific local taxability rules for excess life.

Step 3: Update Excess Life Deductions

Use the Update Excess Life Deductions screen to initialize the deduction amount for excess life insurance for all active employees. You need to know if your excess life is based on a Factor or Insurance Amount (Calculation Method group box).

Excess life deduction information is typically established in the following manner:

1. Deduction Code — Enter, or click to select, the code you assigned to excess life in Step 2.

2. Ceiling Amount — Enter the maximum amount of insurance offered by the company.

3. Rounding Amount — This is an additional amount to add to the calculated insurance amount before it is rounded to the nearest $1,000.  For example, assume a salary of $50,900, a factor of 2, and a rounding amount of $1,500. The calculation would be:

$50,900 * 2 = $101,800

$101,800 + $1,500 = $103,300

Rounding to the nearest $1,000 gives an excess life amount of $103,000.

If you are using a Calculation Method of Factor, complete the rounding amount. If you are using Insurance Amount, there is no need for a rounding amount.

4. Calculation Method - In accordance with your company's excess life setup, select one of the two options.

• Factor — Select this option if the insurance amount is based on the salary amount times a factor.

• Insurance Amount — Select this option if you wish to assign an insurance amount to a salary range.

5. Employee Class — Use this group box to update the Employee Deduction table based on the employee class to which the employee is assigned on the Manage Employee Salary Information screen. The program uses the most current record from the Manage Employee Salary Information screen for each employee. Use the Option drop-down list to select a range of employee class codes. This allows you to select different insurance amounts or factors for employees that fall within the same salary range but are different employee classes.

6. Labor Group — Use this group box to update the Employee Deduction table based on the labor group to which the employee is assigned on the Manage Employee Salary Information screen. The program uses the most current record from the Manage Employee Salary Information screen for each employee. Use the Option drop-down list to select a range of labor groups. This allows you to select different insurance amounts or factors for employees that fall within the same salary range but are in different labor groups.

7. Salary Range/Factor - You can enter up to eight salary ranges and factors in this table. Costpoint uses these to calculate the insurance amount for each employee. If the employee's annual salary falls within the given range, the program multiplies it by the corresponding factor to get the insurance amount. If the employee's "salary times factor" amount is greater than the ceiling amount, the ceiling amount (company's maximum insurance amount) is used in the calculation.

• Starting Salary - Enter the salary amount from which you wish to start this range. The salary ranges cannot overlap and must be filled sequentially.

• Ending Salary - Enter the salary amount with which you wish to end this range. The salary amount in the previous row must be less than the Starting Salary in the current row.

• Factor/Amount - If you selected the Factor option in the Calculation Method group box, enter the factor by which the employee's salary is multiplied. The result is the insurance amount on which the Excess Life Insurance calculation is based. You must establish a factor for each salary range. If you selected the Insurance Amount option in the Calculation Method group box, enter the actual insurance amount for each salary range. Because this is a one-to-one relationship, there is no need for a rounding amount.