Introduction – What Is Form 8925?
IRS Form 8925, titled Report of Employer-Owned Life Insurance Contracts, is an annual informational tax form filed by businesses that own life insurance policies on their workers. The Internal Revenue Service (IRS) oversees this form to monitor corporate-owned life insurance policies and verify that businesses adhere to federal consent standards.
If your company purchases life insurance on an employee, executive, or owner and stands to receive any portion of the payout, you hold an employer-owned life insurance contract. Form 8925 allows the IRS to track how many policies your business owns, how much coverage is active, and whether your workers formally agreed to the arrangement.
Purpose of the Form – Why Does Form 8925 Exist?
Historically, some companies purchased life insurance policies on rank-and-file employees without their knowledge or consent, collecting tax-free death benefits when those workers passed away. To curb this practice, Congress enacted the Pension Protection Act of 2006, introducing Internal Revenue Code (IRC) Sections 101(j) and 6039I.
Under Section 101(j), life insurance death benefits paid to an employer are generally treated as taxable income rather than tax-free proceeds. However, employers can keep the payout entirely tax-free if they meet two strict conditions:
- They notify the employee in writing and receive written consent before the policy is issued.
- The insured employee meets specific eligibility criteria, such as being a key executive, highly compensated employee, or company director.
Form 8925 serves as the compliance reporting mechanism under Section 6039I. It confirms to the IRS that your company tracks its policies and secured proper written consent before coverage took effect.
Who Needs to File This Form?
You must file Form 8925 if your business meets all of the following conditions during the tax year:
- You operate an active trade or business (such as a C corporation, S corporation, partnership, LLC, or sole proprietorship).
- You own one or more employer-owned life insurance contracts issued after August 17, 2006.
- Your business is directly or indirectly a beneficiary under the contract (meaning the business receives some or all of the death benefit proceeds).
- The policy covers an individual who was an employee of your business on the date the contract was issued.
Filing is mandatory every single tax year that you maintain such a policy, even if no new policies were purchased during the current year and no death claims were filed.
Who Is Exempt / Not Required to File?
Not every business life insurance arrangement triggers a Form 8925 filing requirement. You are generally exempt from filing if any of the following apply:
- Grandfathered Policies: All of your employer-owned life insurance policies were issued on or before August 17, 2006, and have not undergone any material increases in coverage or death benefits since that date.
- No Business Beneficiary: Your company provides group-term life insurance or individual policies where the proceeds go 100% to the employee’s family or personal beneficiaries, and the business receives nothing.
- Pure Personal Coverage: Policies owned personally by business owners or partners outside the entity (for example, in a cross-purchase buy-sell agreement owned individually by partners rather than the entity itself).
- Non-Material Section 1035 Exchanges: Certain tax-free policy exchanges under IRC Section 1035 that replace a pre-August 18, 2006 policy without increasing death benefits or adding newly insured lives.
When to File Form 8925
Form 8925 is an annual tax schedule, not a standalone return or a one-time filing. You must file it each year for as long as your company holds an employer-owned life insurance contract issued after August 17, 2006.
The form is submitted directly with your business income tax return. Therefore, its deadline matches the regular or extended due date of your business return:
- Partnerships and S Corporations (Forms 1065 & 1120-S): Typically March 15 (or September 15 with an extension).
- C Corporations (Form 1120): Typically April 15 (or October 15 with an extension).
- Sole Proprietorships and Single-Member LLCs (Form 1040, Schedule C): Typically April 15 (or October 15 with an extension).
Where and How to File
Form 8925 is not submitted separately from your taxes. Instead, you attach it directly to your primary annual income tax return.
- Electronic Filing (E-File): If your business e-files its income tax return through authorized tax software or an accountant, Form 8925 is generated and submitted electronically as an integrated attachment.
- Paper Filing: If you file a physical paper return, print Form 8925, place it directly behind your main tax form and schedules, and mail the entire packet to the IRS address as per instructions for your specific tax return type.
Step-by-Step Instructions to Fill Form 8925
Form 8925 is a short one-page form, but accuracy is critical. Below is a breakdown of how to complete each section.
Header Information
Enter the legal name of the taxpayer as shown on your business tax return. In the adjacent box, provide your Employer Identification Number (EIN) or Social Security Number (SSN) if operating as a sole proprietor.
Line-by-Line Breakdown
| Line Number | Field Description | How to Complete |
|---|---|---|
| Line 1 | Number of employees at the end of the tax year | Enter the total headcount of all full-time and part-time employees working for your company on the last day of your tax year. |
| Line 2 | Number of employees insured under contracts issued after Aug. 17, 2006 | Enter the number of employees included on Line 1 who were covered by an employer-owned policy issued after August 17, 2006, at the end of the tax year. |
| Line 3 | Total amount of insurance in force | Enter the total face value (total death benefit amount in dollars) of all policies covering the employees listed on Line 2 at year-end. |
| Line 4a | Valid consent check (Yes/No) | Check Yes if you obtained proper written notice and consent from every single employee listed on Line 2 before their policy was issued. Check No if you lack consent for any covered employee. |
| Line 4b | Number of employees without valid consent | If you checked “No” on Line 4a, write the exact number of employees on Line 2 for whom you do not have a signed consent form. Leave blank or enter zero if you answered “Yes.” |
Required Documents and Information Needed Before Filling
Gather the following records before preparing Form 8925 to ensure your numbers are consistent and fully documented:
- Year-End Payroll Records: Documentation verifying your company’s total employee headcount on the final day of the tax year.
- Policy Master Documents: Current policy statements showing the policy issue dates, named owner, named beneficiaries, and total death benefits in force at year-end.
- Signed Notice and Consent Forms: Written, signed consent forms from every insured worker confirming they were notified of coverage limits, agreed to be insured, and consented to coverage continuing after employment ends.
- Prior Year Tax Returns: Copies of earlier Form 8925 filings to cross-check continuity in policy counts and coverage totals.
Common Mistakes to Avoid
Small errors on Form 8925 can trigger IRS inquiries or undermine the tax-free status of death benefits. Watch out for these frequent missteps:
- Securing Consent After Issuance: Getting employee consent even one day after the insurance policy is issued does not satisfy IRS rules. Consent must always be dated prior to contract issuance.
- Failing to File Annually: Many business owners assume Form 8925 is only filed in the year a policy is purchased. In reality, you must file it every year the policy remains active.
- Miscalculating Employee Counts: Omitting part-time workers or counting former employees who are no longer on active payroll at year-end will produce incorrect numbers on Line 1.
- Omitting Policy Increases: Significantly increasing the death benefit of a pre-2006 contract can treat it as a newly issued policy, making it subject to consent rules and Form 8925 reporting.
Penalties for Non-Filing or Errors
The primary danger of failing to file Form 8925 is not just an administrative fine; it is the catastrophic loss of tax-exempt death benefits under IRC Section 101(j).
If your business collects life insurance proceeds on an employee and failed to obtain timely consent or report the policy correctly, the payout above the actual premiums paid becomes ordinary taxable income. On a multimillion-dollar policy, this mistake could result in substantial corporate income tax liabilities.
Additionally, general IRS penalties under IRC Section 6652(c) can apply for failing to file complete and correct annual information returns, alongside standard audit risks and interest charges on any unpaid taxes.
Related Forms and Schedules
Form 8925 is submitted as an attachment to primary business tax forms. Common returns that include Form 8925 include:
- Form 1120: U.S. Corporation Income Tax Return
- Form 1120-S: U.S. Income Tax Return for an S Corporation
- Form 1065: U.S. Return of Partnership Income
- Form 1040 (Schedule C): Profit or Loss From Business (for sole proprietors)
- Form 990-T: Exempt Organization Business Income Tax Return
Frequently Asked Questions
What qualifies as a valid written consent?
A valid consent requires the employee to acknowledge in writing that the employer may obtain coverage, review the maximum face amount planned, agree that the employer will be the beneficiary, and accept that coverage may continue after leaving the company.
Do I need to file Form 8925 if the employee leaves the company?
Form 8925 Line 2 specifically reports active employees insured at year-end. If an insured individual is no longer an employee on the final day of your tax year, they are excluded from Lines 1 and 2, but keep detailed records in case of an IRS audit.
What happens if we forgot to obtain written consent before buying the policy?
Late consent cannot retroactively fix the violation for that policy under IRC Section 101(j). You may need to cancel or surrender the existing contract, execute the proper notice and consent paperwork, and apply for a brand new policy.
Is Form 8925 required for group term life insurance provided as an employee benefit?
No. If the policy pays death benefits exclusively to the employee’s family or designated beneficiaries, the employer is not a beneficiary, so Form 8925 does not apply.
Do tax-exempt organizations need to file Form 8925?
Yes. Nonprofits and charities that own life insurance on their key executives or employees must file Form 8925 alongside Form 990-T if they are beneficiaries under the policies.
Can a business owner sign the consent form for themselves?
Yes. If the business is insuring an owner who is also treated as an employee of the entity, that owner must complete and sign the same written notice and consent document before policy issuance.
Conclusion – Key Takeaways Summarized
IRS Form 8925 is a critical compliance document for any business holding employer-owned life insurance policies issued after August 17, 2006. Meeting its filing guidelines safeguards your company from turning valuable tax-free death benefits into heavily taxed corporate income.
Remember that compliance starts before you sign the policy: obtain written employee consent first, track your year-end headcount and coverage totals accurately, and submit Form 8925 each year with your regular business tax return.
