The City continues to provide basic group life insurance benefit at no cost for all employees who retire from City service. In addition to the basic benefit, the retiree can continue to receive the optional 1x or 2x their salary by continuing to pay the premium each month. The value of the life insurance decreases by 25% of the original amount in the year the retiree reaches age 66. Further reductions of 10% of the original amount are taken each year the retiree reaches ages 67 through 71.
As with active employees, the IRS considers any life insurance provided to retirees that exceeds $50,000 as a “taxable fringe benefit”. The taxable value is calculated by using an age bracket table (as supplied by the IRS) and subtracting any amounts paid by the retiree for their optional life insurance. The final taxable value is then added to the retiree’s record that is contained in the City’s payroll system, this action creates a W-2 with the taxable amounts printed in the appropriate boxes. The City pays its share of FICA taxes (7.65%) on this value. The FICA taxes that cannot be collected from the retiree are printed on their W-2 form with codes "M" (Uncollected Social Security Tax) and code "N" (Uncollected Medicare tax). The retiree will have to pay these taxes when they file their 1040 form.