Some Lawrence school district employees are going to see smaller take-home pay beginning in their next paychecks because a re-evaluation of life insurance provided through the state pension plan deemed the benefit taxable.
While those taxes may take a noticeable chunk out of some school teachers' paychecks, the deduction will be "peanuts for most of our people," said Bill Wilson, the district's director of human resources. Wilson explained the tax deduction to members of the Lawrence Education Assn. during teacher negotiations Monday night.
Wilson said that under Internal Revenue Service regulations, the maximum amount of group-term life insurance coverage an employer can provide an employee on a before-tax basis is $50,000. An employee with additional coverage must include the cost of the insurance in excess of $50,000 in his or her gross income, thus making the cost of that coverage taxable.
PRESENTLY, Wilson said, the Lawrence district provides school employees with $20,000 in life insurance on a before-tax basis. The district also offers an optional $30,000 in additional coverage, which keeps employer-paid coverage within the $50,000 guideline.
However, when the Kansas Public Employees Retirement System, or KPERS, which provides benefits for district employees, increased its life insurance coverage in January, the question was raised as to whether KPERS life insurance should be considered as an employer-paid benefit. Tax authorities decided that it should, and now many school employees across the state are considered to have more than $50,000 in employer-paid coverage.
Such school employees are to be taxed retroactively to Jan. 1 for the cost of coverage beyond $50,000. All of those taxes dating to Jan. 1 will be withheld in the district's next pay period. District employees also will continue to see those taxes deducted for this month and in the future.
THE KPERS life insurance coverage is based on a teacher's salary. A Lawrence teacher earning $30,000 a year and with $50,000 in life insurance coverage from the district would have to pay $20.25 a month in taxes. A Lawrence teacher earning $21,600 a year and with $20,000 in life insurance coverage from the district would have to pay 12 cents a month in taxes.
Wilson said he thought the KPERS coverage shouldn't be considered an employer-paid benefit because school employees pay 4 percent of their earnings into KPERS.
"That's the thing that makes absolutely no sense to me," Wilson said.