As an Exchange retiree, you probably assume you would no longer receive a W2 each January for “wages.” You will continue to receive a W2 from the Exchange as long as your life insurance is valued at more than $50,000. In those cases, the information on the W2 must be included in your income when filing taxes. The value of the life insurance over $50,000 is computed and shown as wages in box 1, 3, and 5 of the W2 and box 12 with code C. The amount is also subject to social security and Medicare taxes shown in box 12 with codes M and N.
Note: This is a not a premium, it is tax on the imputed income based on the value of the life insurance benefit. The multiplier increases almost double at Age 65 and increases about 1.6% at age 70 which means when you reach these age thresholds you will see a change in the calculated cost. Also remember that life insurance amounts are reduced by 25% at ages 66, 67, and 68 and should the life insurance value fall below $50,000, a W2 will not be generated by the Exchange.
The monthly cost of the insurance to include in the employee’s wages is calculated by multiplying the number of thousands of dollars of all insurance coverage over $50,000 (figured to the nearest $100) by the cost shown in Table 2-2. For all coverage provided within the calendar year, use the employee’s age on the last day of the employee’s tax year. The cost must be prorated if less than full month of coverage is involved.
Table 2-2. Cost Per $1,000 of Protection for 1 Month
Age Cost
Under 25 0.05
25 through 29 0.06
30 through 34 0.08
35 through 39 0.09
40 through 44 0.10
45 through 49 0.15
50 through 54 0.23
55 through 59 0.43
60 through 64 0.66
65 through 69 1.27
70 and older 2.06
The total cost to include in the employee’s wages is determined by multiplying the monthly cost by the number of months’ coverage at that cost.
This information is at https://www.irs.gov/publications/p15b#en_US_2025_publink1000193677.
To learn more about the Life Insurance Plan click here.