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How should we report excess group-term life insurance for bankrupt company?

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in Office Management,Payroll Management

Question: One of our affiliated companies filed for bankruptcy protection. As a result, the company’s assets were frozen and everyone was let go. Unfortunately, Payroll didn’t impute the excess group-term life insurance into employees’ income. Must we still report the excess group-term life as income on employees’ W-2s? Since employees have terminated, what’s the best way to handle the employee and employer taxes?

Answer: The bankruptcy has nothing to do with reporting employees’ excess group-term life insurance and paying taxes on those amounts. Since there are no cash wages from which you can withhold, you’ll need to gross up those amounts. You should consult with the company’s tax professionals to determine how the taxes will be paid, since the company’s assets have been frozen during the bankruptcy proceedings.

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