by trailblazer2714 » Thu Dec 18, 2014 05:02 pm
I am a small business owner with 12 part time employees. My wife and I are 50/50% owners of the business and are on payroll. Can we receive employer sponsored life insurance thru the company without offering it to our other employees since we are greater than 5% owners? The company files as an S corp
Posted: Wed Dec 24, 2014 09:52 am Post Subject:
There is no law that prohibits you from obtaining life insurance as owners of the business to the exclusion of your employees. But you would be looking for "Key Person" policies, not group life insurance. If you go looking for group life insurance, then you may not be able to discriminate against your employees like this, unless they fail to meet any benefit eligibility requirements set by law or imposed by the insurance company.
As part time employees, they probably could be excluded from a group life policy, but then the insurance company would probably not issue a "group" policy to you and your wife only. And besides, you couldn't obtain more than $50,000 of group life insurance without an income tax liability for either the death benefit or the premiums for any amount of insurance above $50,000. Your professional tax adviser can probably explain that to you. Most life insurance agents could not.
However, you would also need to consult an income tax professional for guidance about paying the premiums with business funds. You may not be able to deduct the cost of the insurance as a business expense, regardless of what some insurance agents tell you.
Life insurance is not a retirement plan, and should not be proposed to you as such. And when it comes to retirement plans, failing to include certain employees could get you into big trouble with the IRS. So be sure to consult your professional tax adviser before making any commitments to a life insurance agent about life insurance, annuities, or retirement plans (either defined benefit, which you probably cannot afford, or defined contribution plans, which could limit your contribution amounts because you are the owners of the business).
As an S Corp, it really means nothing that you are on payroll because all of the profits funnel through to you as owners.
If you are in California or Texas, I can give you additional information or guidance.
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